The economic consequences of the corona pandemic, and in particular the war in Ukraine, have already spilled over into people’s daily lives. According to Statistics Austria, inflation in the country reached 8.7 percent, the highest level in 47 years. But the overall economic situation is unlikely to gain any real momentum for the foreseeable future – according to the current forecast, this will put a significant damper on economic output in the coming years. A possible failure of gas supplies could further amplify the effect.
This is shown by the current medium-term forecast of the Austrian Institute for Economic Research (WIFO) for 2022 to 2026. This year the gross domestic product (GDP) will grow by 4.3 percent, but in the four years after that only around 1.5 percent, so about two-thirds weaker.
According to the forecast, the outlook will weaken significantly from the second half of 2022. GDP growth of just 1.6 percent is currently projected for 2023 – half a percentage point less than the WIFO forecast in March.
Inflation reaches highest level in 47 years
The not very optimistic outlook reached a new high for inflation. Renewed price increases for fuel, food, household energy and catering pushed inflation to 8.7 percent in June. This is the highest inflation in 47 years.
The price increase was also particularly noticeable in weekly purchases. The mini-shopping basket, which includes fuel in addition to food and services, is up nearly 19 percent year-on-year.
Will inflation peak soon?
But just in case “there isn’t enough gas in the winter,” WIFO boss Gabriel Felbermayr recently even suggested an inflation rate twice as high as a 2022 possibility at a discussion event in Berlin. If this were to happen, a recession would eventually be lurking.
According to WIFO forecasts today, Tuesday, inflation will rise to 5.3 percent (2023) in the coming years and then further to 3.5 percent (2024) or 2.7 percent (2025) and 2.5 percent. (2026) quite calm down.
The war in Ukraine and the pandemic “greatly exacerbate and greatly extend the strong price increases observed worldwide since 2021,” the economic researchers stated in their update of the medium-term forecast for the Austrian economy from 2022 to 2026.
Four percent loss in real wages
The labor market, meanwhile, should be relatively stable, with an unemployment rate of 6.3 percent in 2022 and 2023, a slight decline to 6.2 percent in 2024 and 2025 and 6.1 percent in 2026. From 2023, the average according to the economic experts is the employment growth rate 0.9 percent per year.
Workers in Austria will face a real per capita wage loss of nearly 4 percent this year. Mainly due to the approximately one-year delay in wage adjustment to inflation and the decline in inflation over the forecast period, real wages are expected to “scroll by 1.3 percent to 0.5% between 2023 and 2026.” percent per year”, albeit with a downward trend. For nominal gross wages and salaries, the development of employment, real wages per capita and inflation will lead to a declining increase from 7.8 percent (2023) to 3.8 percent in 2026.
Emergency measures already taken
According to the information provided, the forecast already takes into account the entry into force of the 2022/2024 Eco-Social Tax Reform on January 1, 2022, the three packages of measures to reduce purchasing power losses due to high inflation and additional spending on hosting refugees from Ukraine.
According to the WIFO, the budget deficit in 2022, at 3 percent of nominal GDP, will be more than half a percentage point higher than expected in March due to lower revenues and higher government spending. By compensating for the cold trend from 2023, the loss of income will increase.
Still positive outlook
This medium-term forecast is based on a – relatively – positive scenario. For Austria and its major trading partners such as China, no further significant restrictions on economic activity are assumed from the second half of 2022 due to the COVID-19 pandemic. In addition, the forecast is based on the assumption that the supply of natural gas and crude oil from Russia and Kazakhstan “will not be permanently restricted”.
Source: Krone
I’m Wayne Wickman, a professional journalist and author for Today Times Live. My specialty is covering global news and current events, offering readers a unique perspective on the world’s most pressing issues. I’m passionate about storytelling and helping people stay informed on the goings-on of our planet.
