Outlook
The state of the economy and the development of the leading indicators at the turn of the year are pointing to a continuation of the upswing in the Eurozone in 2011, which, however, will be overshadowed by the aftermath of the sovereign debt crisis. The development of food prices and the uprising of citizens in the MENA region resulting in higher crude oil prices have led to a discussion about the probability of substantially higher inflation rates.
Domestic consumption will likely become a more important source of support for economic growth, while foreign trade will make less of a contribution. The individual economies in the region will continue to grow at different rates, but the planned spending cuts and budget consolidation measures will have a slowing effect on the entire Eurozone economy. Because of the continuing doubts about the viability of the public finances of a number of member states, the financial markets are likely to remain highly volatile. This may have a negative impact on the real economy.
In light of the currently precarious debt situation of some countries in the Eurozone, Austria's economic prospects for 2011 are comparatively good. The Austrian government must also consolidate its budget, but the growth-hampering effects will be relatively minor. Austria has one of the lowest unemployment rates in the Eurozone, and the conditions on the labour market are expected to improve further during the current year. The domestic economy could gain substantial momentum during 2011 and balance out the slowdown in exports. Real GDP is projected to grow by about 2 per cent, as last year. Thus far, it is not clear whether and to what extent the recent international developments will affect Austria.
The Austrian economy has coped well with the economic crisis. So far, the number of personal bankruptcies and corporate insolvencies has not been as high as previously expected. However, aftereffects of the recession or a significant rise in interest rates in 2011 could lead to an increase of personal bankruptcies and corporate insolvencies. In addition, negative impacts on financial results from fair value changes cannot be ruled out due to the continued high financial market volatility.
As the majority of the Bank's loan portfolio is composed of domestic customers, BAWAG P.S.K.'s performance is partly dependent on the development of the Austrian economy, and the current economic forecasts are cautiously optimistic. In 2011 the Bank will be subject to strong competition in the market place, which will result in a tight margin situation on both the credit and the deposit side. Furthermore, new regulations and additional financial burdens (e.g. the bank levy) will lead to a tough business environment.
Nevertheless, BAWAG P.S.K. will use its good momentum from 2010 to successfully overcome these external shocks and the strong market competition. In addition, the Bank will continue to work hard on implementing a number of initiatives and projects, including the new branch offensive, with the focus on further improving our customer service. From an economic point of view, BAWAG P.S.K. is optimally prepared for the financial year 2011 due to its financial strength, the growth of its core banking business and its strong liquidity position.