This year our economy will shrink by 7.1 percent


This year our economy will shrink by 7.1 percent

The National Bank (OeNB) expects a decline in gross domestic product (GDP) of 7.1 percent this year.

The second corona wave slowed the interim recovery of the domestic economy again. For this reason, the Austrian National Bank (OeNB) expects the gross domestic product (GDP) to shrink by 7.1 percent this year. The forecast for 2021 is not so optimistic with plus 3.6 instead of four percent. The pre-crisis level is not expected to be reached again until mid-2022.

According to the OeNB, the budget deficit will rise to 9.2 percent of GDP this year and will decrease to 1.4 percent by 2023. The National Bank assumes that although vaccines will be available at the beginning of 2021, they will only be used effectively globally after a year. Therefore, economic support measures can only be scaled back gradually.

Compared to the first lockdown, the second lockdown did far less damage to the economy. In the spring there was a year-on-year decline of 25 percent, in autumn the minus should be “only” half, around 13 percent. This relative improvement was due to the fact that the supply chains were not so badly affected, the production facilities remained open and generally hope for drugs or vaccinations lead to greater confidence.

So this time around, trade will be little affected. Tourism, on the other hand, is still suffering a lot. Exports of goods and services, including tourism, will collapse by twelve percent this year, the National Bank expects.

This year the Austrians have significantly reduced their consumer spending and put a lot of money aside for it – the savings rate has risen to 13.7 percent. However, part of this saved money should flow into consumption again in 2021, so consumption growth of 3.9 percent can be expected despite stagnating real incomes.

While the number of hours worked by employees in Austria has fallen by 8.8 percent this year, thanks to short-time working, the number of jobs has only fallen by 2.3 percent. In 2021 the OeNB expects “a slight increase in employment”.

Inflation (HICP) is likely to decline only slightly this year to 1.3 percent and then slowly rise to 1.7 percent in 2022 and 2023. The government debt ratio will rise very sharply in 2020 and 2021 (to 83.3 and 86.4 percent of GDP, respectively) and will then decrease slightly to 82.5 percent of GDP by 2023.

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