Economic recovery in Austria is likely to be slower than expected, according to Coronavirus.



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It takes time to revive the economy


It takes time to revive the economy
© APA (archive)

The recovery of the Austrian economy could take longer than initially expected after the crown crisis.

Economists from the Vienna University of Economics and Business, the IHS, Wifo and the International Institute for Applied Systems Analysis (IIASA) expect a joint study to last up to three years. GDP could decrease as much as 6.0 percent this year.

At the end of March, the Economic Research Institute (Wifo) and the Institute of Higher Studies (IHS) expected, at best, a decrease in gross domestic product (GDP) from 2 to 2.5 percent and a V-shaped recession. This would have meant a sharp drop in the economy followed by a strong recovery in the second half of 2020 and the following year.

Pre-crisis level not expected until 2022

However, the simulation models in this study offer a somewhat murky picture. The 6.0 percent drop in GDP is based on the assumption that the decline in economic activity will continue until mid-June, according to the WU. If it only lasts until mid-May, a 4.0 percent decline in GDP is expected.

Economists expect a clear recovery and positive growth rates for the next two years, but GDP will not return to pre-crisis levels until the end of 2022. Austria’s destiny is, among other things, the strong international network in the industry. “Smaller economies like Austria, which have highly developed production and service sectors with a complex network of national and international economic relations, should therefore expect COVID 19’s pandemic crisis measures to have a remarkable multiplier effect,” he said. WU economist Jesús Crespo Cuaresma.

Increase in unemployment

Furthermore, it would take time for investments to resume, for workers to be recruited, and for consumer and intermediate goods to recover again. Despite the possibility of working in the short term, economists expect the unemployment rate to rise to more than 10.5 percent by 2020, assuming current restrictions by mid-May. If the measures remain in place until mid-June, the forecast will even rise to 12 percent and a return to a pre-crisis level is not expected before the end of 2022.

Government debt increases

The government debt ratio will also rise from 70.4 to just under 75 percent by the end of the year due to government-approved subsidies, and will not drop to around 70 percent until the end of 2022 if restrictions on the economy alone they apply until mid-May, economists say.

State aid measures are still absolutely necessary, especially for the sectors directly affected, such as the hotel and restaurant industry. For this, scientists expect a massive decrease in production over the course of the year, which should not recover for a long time. “The hotel and restaurant sector is forecast to decline by as much as 33 percentage points, assuming a nine-week close by the end of the second quarter of 2020, and more than 50 percentage points if the restrictions continue until mid-June. This decrease in production will be aggravated by “The further expansion within our 3-year simulation period was only partially offset, so that sectoral production, especially for construction, trade, transport and hospitality, remains below the trend, “the researchers said.

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