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As a general rule, economic researchers at Wifo and the Institute for Advanced Study (IHS) make demands on policy. This time, however, they have called on the population, that is, to behave when dealing with the corona pandemic in such a way that the recent sharp increase in the number of infections decreases again. “We can do a lot with our own behavior so that there is no need for a lockdown again,” Wifo boss Christoph Badelt emphasized on Friday at the presentation of the new economic forecasts for Austria. Containing the number of infections is “crucial,” said IHS Director Martin Kocher. Because currently these would strongly correlate with economic dynamics.
After the historically unprecedented economic crisis in the second quarter, which was characterized by lockdown measures, when gross domestic product (GDP) fell by 14.3 percent year-on-year, there was a phase of strong growth of more than 10 percent in the summer (Wifo estimate) established. But with the increasing number of new infections, the mood and economic situation in Austria, especially in the tourism industry, which has been hit hard by the latest rice warnings, have been clouded again. “The still very high level of uncertainty is holding back the uptrend,” Kocher said.
Another lock would be a disaster
Badelt sees it similarly: “We may be on the rise again, but growth is now lagging behind.” Kocher and Badelt agree that only a vaccine against the virus will improve mood and create stronger upward potential. Until then, only moderate economic growth can be expected. Kocher assumes that this phase could last until mid-2021.
For 2020 as a whole, Wifo and IHS expect GDP to fall by 6.8 and 6.7 percent, respectively, after the strong economic recession in the first half of the year, and the national economy should grow by 4, 4 and 4.7 percent, respectively, in 2021. The prerequisite for these forecasts is, of course, that Austria be spared a second lockdown in autumn. Wifo has calculated that such a forecast would worsen its forecast values for this year and next by 2.5 to 4.0 percentage points.
However, Badelt and Kocher cannot gain anything from any additional policy measures to stimulate the economy. Especially since several previous measures “have not yet been implemented or arrived,” as the head of Wifo noted. As examples he cited the Corona Labor Foundation and the second phase of fixed costs that had not yet been negotiated with Brussels. “Even with many new measures, I can no longer establish economic activity,” emphasized his colleague from IHS. “The only thing that helps is better control of the infection process.”
When it comes to unemployment in Austria, Wifo and IHS expect a dizzying rate of 9.8 and 9.9 percent respectively for this year and a rate of 8.8 and 9.4 percent respectively for 2021. “The market labor is and will continue to be our biggest problem, “said Badelt. “That will keep us busy.” More than ever, more qualification measures are necessary and in this context the planned workforce is also welcome, Badelt said.
“You cannot spend infinite money”
Meanwhile, the tax price that Austria must pay for its crown measures is high. After a surplus in the previous year, the budget deficit will rise to unimaginable levels this year, according to the Wifo forecast at 9.4 percent of GDP and according to the IHS estimate at 11.7 percent. By 2021, the financial balance is expected to be minus 4.7 and minus 6.1 percent, respectively. Badelt believes that all the above government measures are correct. But: “You cannot spend infinite money, you have to go back to consolidation.” The government would do well to think about structural reforms again as soon as possible, Badelt said. This includes, for example, the greening of the tax system, but also the issue of care. Once the crisis is over, “great efforts are needed to consolidate the budget,” Kocher added.
Figures from Statistics Austria show that the raging global economic crisis in the crown is not only putting a notable brake on the federal budget, but also on Austria’s foreign trade. From January to July, domestic exports contracted 10.5 percent to € 81.5 billion compared to the same period last year. However, the value of imports fell even more sharply, by 13.1 percent to 82 billion euros. This has reduced the trade deficit from 3.3 to 500 million euros.
The European Union remained the most important trading partner even during the Crown crisis. “Two-thirds of foreign trade took place within the domestic market,” said Tobias Thomas, director of Statistics Austria.
