How quickly will the Austrian economy recover from the COVID-19 pandemic?
Christoph Badelt, WU Department of Socioeconomics, director of the Austrian Institute for Economic Research (WIFO)
Syeda K.: How quickly will the Austrian economy recover from the COVID-19 pandemic?
The COVID-19 pandemic has led to the most severe economic crisis in a century. In the year 2020, the economy (measured in terms of GDP) shrank by approximately 6.6%. After many years of growing employment figures in Austria, 2020 saw a decrease of around 2%. The average unemployment rate for 2020 was around 9.9%. In absolute figures, the number of people without a job at some points exceeded 500,000. During certain periods, over 1 million people were on short-time work.
This economic development is caused by the pandemic, especially by the health policy regulations put in place, meaning that entire sectors of the economy have had to be shut down temporarily or can only operate under restricted conditions. The service sector has been hit particularly hard, especially tourism, the hospitality industry, culture and the arts, the event industry, and the transportation industry.
We will not see a lasting economic recovery until the pandemic is under control – be it through vaccinations or through testing – and the number of people becoming infected with COVID-19 can be reduced reliably. Only after reaching this goal will it be possible for the economic sectors that are currently shut down to start up production again.
Against this background, it would not be responsible to publish one single economic forecast that gives the illusion of certainty even though such certainty does not currently exist. At the Austrian Institute of Economic Research (WIFO), we have Instead decided to base our projections on calculations for two different scenarios.
The “reopening scenario” assumes that the measures currently imposed by the authorities will be lifted in the spring. This would for example allow restaurants to reopen in mid-April, and the travel warnings currently in place would be lifted gradually from the end of April to the end of June.
The “lockdown scenario” assumes that the retail sector and providers of close contact services will have to close again in April (for a total of four weeks). In this scenario, hotels would only be able to reopen at the end of May, and the event and arts and culture industries would only be able to return to normal starting in the fall of 2021.
In the first scenario, the GDP would bounce back by 2.3% in 2021 and by 4.3% in 2022. In the second scenario, the GDP would increase by 1.5% and 4.7%, respectively. Exports of commercial goods, the manufacturing industry, and the construction industry have hardly been affected by Austria’s national COVID-19 measures at all. Private consumption and travel activity are forecast to remain below precrisis levels in 2022.
The shape of the economic development is as follows: Last year’s economic slump (in the second quarter of 2020) is clearly visible, just as the temporary recovery we experienced last summer and the subsequent downturn caused by the “third lockdown” imposed at the end of the year. The downturn continues in the first quarter of 2021, and the effects of the recovery will only start to set in in the second quarter. Production is forecast to reach precrisis levels again around the end of 2022 and the beginning of 2023.
Unfortunately, this “road map” of the projected economic recovery does not apply for all important economic variables. For instance, the WIFO still forecasts an unemployment rate of 8.4% and a budget deficit of 3.7% in 2022 – even though Austria had a slight budget surplus at the onset of the crisis.