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Image: HELMUT FOHRINGER (APA)
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Image: HELMUT FOHRINGER (APA)
VIENNA. Austria is stuck in its longest recession since 1946 – economic researchers lower their economic forecast and expect the government’s cash collapse.
“We were wrong,” said Holger Bonin, head of the Institute for Advanced Studies (IHS), at the presentation of the autumn economic forecast together with Wifo on Friday in Vienna. A year ago, economists predicted: “A mild recession will be followed by a cautious recovery.” But nothing will come of it. After 2023, Austria’s economic output (GDP) will also shrink this year.
Both Wifo and IHS now expect minus 0.6 percent for 2024. At the end of June they had forecast 0.0 (Wifo) and +0.3 percent (IHS). “This is the longest recession since 1946, although not the deepest,” said Wifo boss Gabriel Felbermayr on Friday. Inflation is falling and unemployment is rising (see chart for details).
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Image: M. Hirsch
Investments, consumption weak
Investments in equipment (machinery, equipment, vehicles) are declining this year and probably next year. The construction industry is negative this year, but is expected to pick up slightly in 2025. Austria’s exports are falling this year due to the weak industrial economy in Europe and the loss of competitiveness due to high energy and wage costs and are expected to rise again in 2025. Consumption is stagnating this year and the savings rate is rising significantly – although the general conditions would be positive with rising real incomes and a relatively robust labor market. “The Austrians are still feeling the inflation shock in their bones,” said Felbermayr. “Safety savings” also occur because of the population’s skepticism about the economic sustainability of the system.
Wifo and IHS expect budget deficits this year and 2025 to be well above the Maastricht limit of three percent. According to Wifo, the national debt ratio will rise from 78.6 percent to 80.1 percent of GDP this year and 82.4 percent next year.
- HONEY 1: Recession: Government ignored warnings
Sugar tax, depreciation
Because of the economy, there is “not time for a massive austerity package,” but a “cash collapse” is expected for the next government, said Felbermayr. One should “cut out what does not contribute to the economic recovery”. For example, he is in favor of ending the climate bonus, reducing additional wage costs (family burden compensation fund, unemployment insurance) and limited, accelerated depreciation for companies as well as reducing excessive bureaucracy. Felbermayr also advocates for incentive taxes such as a sugar tax and a gradual increase in the mineral oil tax, which has not been adjusted for inflation for a long time. There is also potential for property taxes. Above all, “the government must strengthen confidence”. A credible structural reform agenda is needed in education, health and pensions.
Bonin is, among other things, for an adjustment of the “socially inaccurate” climate bonus, changes to the corridor pension, stricter rules for educational leave, more efficient administration and growth-promoting measures. And a new government is needed quickly so that the existing uncertainty is not increased. There should be no “hasty economic stimulus package” and “expensive compromise solutions”.
For 2025, economists expect foreign demand to pick up, consumption to pick up and the economy to grow. “But the prospects are extremely uncertain,” said Felbermayr. If many European countries were to launch major austerity programs at the same time, “then the export-driven upswing would fail.” That is a significant risk.
