The economic experts of the Economic Research Institute (Wifo) and the Institute for Higher Studies (IHS) expect mini-economic growth and persistently high inflation in Austria this year. However, the economic downturn has only a minor impact on the labor market. Due to high inflation, tax revenues bubble up. For 2024, economists expect higher growth and a fall in inflation.
“The biggest challenge is inflation. Price dynamics are way too high,” said Wifo boss Gabriel Felbermayr at the presentation of the spring forecast in Vienna on Thursday. “That worries me.” interim IHS director Klaus Neusser called for a more restrictive fiscal policy and government measures should be aimed at “greater rigor,” Neusser said.
Wifo and IHS have noticeably revised upwards the inflation expected for the current year in their spring economic forecast published today. Last December, economic researchers still assumed an inflation rate of 6.5 or 6.7 percent in Austria for 2023. Now the predicted increase in the consumer price index (CPI) is 7.1 or 7.5 percent. Last year inflation was 8.6 percent.
According to the economic research institute (Wifo), the high energy prices will be passed on to other goods and services faster and more strongly than assumed in the latest economic forecast. In the coming year, the experts expect inflation to halve to 3.5 percent (IHS) and 3.8 percent (Wifo).
Economic growth slowed sharply
Both institutes left their forecasts for domestic economic development virtually unchanged from December. Austria’s economic growth this year will be strongly inhibited by high inflation and weak international demand, among other things, and should amount to only 0.3 and 0.5 percent in real terms, according to Wifo and IHS.
In the second half of the current year, the Wifo economists expect “an economic upswing” and the IHS researchers expect a return to “a stable growth path”. For the coming year, the experts expect economic growth of 1.4 percent (IHS) and 1.8 percent (Wifo).
The roller coaster ride continues
The Austrian economy has been on a roller coaster ride in recent years: after the corona-related slump in real economic growth of minus 6.5 percent in 2020, it rose sharply again in 2021 by plus 4.6 percent and in 2022 by plus 5 percent. In the second half of 2022, an international economic malaise set in, which also affected the Austrian economy.
However, the stagnation of the economy in the current year has hardly left any traces on the labor market. Wifo expects the national unemployment rate to rise just 0.1 percentage point to 6.4 percent, while IHS expects it to move sideways. For 2024, the experts expect the unemployment rate to fall to 6.1 or 6.2 percent.
Positive effects on the state budget
However, the high inflation helps the government budget: inflation causes tax revenues to rise much faster than government expenditures and the nominal gross domestic product is expected to increase by 7.4 percent this year to 480.6 billion euros. For this year, Wifo expects a government balance as a percentage of gross domestic product (GDP) of minus 1.8 percent, the IHS with a budget balance of minus 2.9 percent.
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.
