“Austria is on the way to stagflation,” said Wifo boss Gabriel Felbermayr yesterday at the beginning of the presentation of the economic forecast. The year 2022 was still a “really good one”, thanks to a first half of the year that went unexpectedly well for economic researchers. “Austria’s economy is growing faster than China’s this year and that’s saying something,” said the Wifo boss.
Tourism in particular went well, and industry also delivered “solid growth” in the first half of the year. But now the industry is slipping rapidly, the reason for this is the high energy prices. For this economic sector, the Wifo expects a contraction of two percent next year.
Energy prices remain high
Felbermayr does not expect the energy prices, especially gas, to fall quickly. And accordingly, he does not expect inflation to ease anytime soon. “The expensive energy eats into the prices,” said the Wifo boss. The inflation rate will fall slightly over the course of the next year (see chart), but will remain well above the European Central Bank’s (ECB) target of two percent.
The labor market is proving to be quite stable. However, the industrial recession will leave its mark next year. The unemployment rate of 6.4 percent this year will rise to 6.7 percent. “All in all, the numbers are better than the mood,” said Klaus Nesser, interim director of the Institute for Advanced Studies (IHS).
However, high inflation is having a full impact on wages and salaries. Wifo expects gross real wages to fall by 4.3 percent this year, and net real wages to fall by 2.8 percent. “Price inflation is eating away at our purchasing power,” said Felbermayr. When it comes to wage negotiations, he expects correspondingly significant increases of 6.5 percent across all sectors.
With these “strong wage increases” in the fall, the abolition of cold progression and the weakening of inflation, net real wages are expected to rise once more by 4.4 percent next year. However, real interest rates remain clearly negative. Although the ECB reacted “late, but nevertheless”, the euro will remain weak, which will further fuel the rise in energy prices.
“Potential for blackmail smaller”
According to Wifo, around an eighth of the gas volume flows from Russia to Europe as it did before the Ukraine war. A complete halt to gas supplies would not change the forecast too much. “The potential for blackmail has decreased,” said Felbermayr. However, the recession in industry would intensify.
The researchers are skeptical regarding attempts to introduce a gas price cap. If so, then this would have to be done at European level. “What we really don’t need at the moment would be a subsidy race,” said Felbermayr. But even then there would be a great danger that supplier countries would sell their gas in other regions of the world and that there would be a further shortage of supply here. (hn)
