Compared to 2019, there is a real loss of prosperity in Austria, which will not only continue in 2023, but also in the coming year. The reasons that make us poorer: aftermath of the corona pandemic and the war in Ukraine.
Simply put, the loss of welfare is due to the fact that despite an increase in gross domestic product, considerably more domestic production has to be used to pay for imports, according to the head of the Economic Research Institute (WIFO). Gabriel Felbermayr.
Rising and falling prices create uncertainty
For example, energy imports from Russia, which are still fundamental to Austria and have recently increased again, have become extremely expensive. That was the case even before the war started. Since then there have been price rises and falls, fundamentally creating uncertainty in the economy.
In the resulting distribution conflict, someone has to lose their feathers. According to the Wifo director: “A fair distribution of burdens is important.” And: State measures, but also further wage increases or the discussed rent brake must be “designed in such a way that strong shoulders bear more burdens than weak ones”. According to Felbermayr, the loss of prosperity must be realized somewhere. “The cake has become smaller, there is nothing more to share.”
The slump in real disposable income occurred in 2020, according to Felbermayr. The real disposable income per capita that can be used for consumption in Austria will still only be around 98.8 percent of its pre-crisis level in 2019 in 2024. This year it is about 98 percent.
Restraint needed to prevent inflation
Not everything can be adjusted for inflation. “Otherwise, inflation will remain very high for a long time to come.” That is why restraint is called for in combating inflation, even in the case of a rent cap or further wage increases.
With a lower real economic output, the adjustment of all prices and incomes (wages, rents, …) to inflation according to the consumer price index leads to a permanently high inflation.
“This war makes us all poorer”
Basically he said, “This war makes us all poorer. And the consequences of Covid are not over either.” Economic decoupling with Russia – whose GDP figures are not credible, even though the war economy always increases GDP – is “in full swing”. Trade in goods with Ukraine is surprisingly resilient.
The labor market needs a solution to the paradox of labor shortage despite strong population growth. When it comes to energy prices, a credible, Europe-wide plan is needed on how fast enough renewables can be developed.
According to data from Wifo, industrial production in Austria is stable despite the explosion in energy prices.
Source: Krone
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
