Austria‘s economy remains in crisis. This was the finding of the economic research institute Wifo in its economic report published on Monday. Industry and the construction sector are particularly affected; they are suffering from a lack of demand and are facing a slump in economic activity and consumption.
“The current recession in the manufacturing of goods is the second longest crisis in more than 20 years,” said Wifo economist Marcus Scheiblecker. Only the crisis at the turn of the millennium lasted longer. Back then, however, the production losses were significantly smaller.
Production has fallen in the last six quarters. This is the third largest drop in production after the financial and economic crisis of 2008/09 and the corona pandemic. Residential construction investments have fallen by around a fifth over the last nine quarters. There is “no sign yet” that the situation will improve. Leading indicators for Austria and the euro area suggest “only subdued economic momentum for the coming months,” according to the Wifo report. Countries such as Austria and Germany in particular are burdened by the lack of demand for industrial goods. Inflation, on the other hand, has calmed down. In August, inflation fell to 2.4 percent. The ECB’s target is two percent.
“Increase competitiveness”
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In view of the “severe industrial recession”, Wifo head Gabriel Felbermayr, who comes from Upper Austria, spoke out in favor of countermeasures and reforms. “We must once again focus on costs. Competitiveness must be increased again,” Felbermayr told ORF, adding: “We will have to turn the screws, some of which will also be painful.” Reforms are needed in the labor market and in public finances, and the next government must treat these issues as a priority. But “trying to add something new” before the National Council elections at the end of September makes no sense.
Mario Draghi, former head of the European Central Bank (ECB), issued a warning on Monday. Draghi said that the EU was in danger of falling behind economically, especially compared to China and the USA. In order to increase productivity and competitiveness, additional annual investments of 750 to 800 billion euros were needed in Europe.
Draghi cited an increasing difference in economic output per capita as an example. The USA is driven by large technology companies, while Europe is stuck in a static industrial structure. The largest investors in research and development in Europe come from the currently ailing automotive industry, said Draghi.
Joint debt?
The former Italian Prime Minister called for research progress to be better translated into commercial ventures. There is also a need for a European plan for decarbonization and lower energy prices. And the EU must reduce the burden on companies by reducing bureaucracy, become more capable of taking action and reduce dependence on third countries, including in the area of defense. But lower wage costs are not a solution.
In order to raise money for the measures, the former ECB chief suggested joint debt via EU bonds. This would strengthen the integration and efficiency of the EU capital market, said Draghi. Germany’s Finance Minister Christian Lindner rejected this suggestion.
This article was last updated at 5:13 p.m.
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What is Austria’s economy based on
Austria’s Economy Remains in Crisis: Industry and Construction Suffer from Lack of Demand
Austria’s economy is struggling to recover from a recession, with the industry and construction sectors being particularly hard hit. According to a report by the economic research institute Wifo, the current recession in the manufacturing of goods is the second longest crisis in more than 20 years. Production has fallen in the last six quarters, with a decline of 0.8% in 2023, making it the third largest drop in production after the financial and economic crisis of 2008/09 and the corona pandemic [[1]].
The Wifo report highlights that the lack of demand for industrial goods is a major factor contributing to the economic downturn, with countries such as Austria and Germany being particularly affected. Inflation, on the other hand, has calmed down, with a rate of 2.4% in August, which is within the European Central Bank’s (ECB) target of 2% [[1]].
Need for Countermeasures and Reforms
In light of the ”severe industrial recession”, Wifo head Gabriel Felbermayr has called for countermeasures and reforms to increase competitiveness. Felbermayr emphasized the need to focus on costs and implementing reforms in the labor market and public finances, which should be a priority for the next government [[2]].
Mario Draghi’s Warning: EU at Risk of Falling Behind Economically
Meanwhile, former ECB head Mario Draghi has warned that the European Union is in danger of falling behind economically, especially compared to China and the USA. Draghi has called for additional annual investments of 750 to 800 billion euros in Europe to increase productivity and competitiveness [[2]].
Joint Debt as a Solution?
Draghi has also suggested joint debt via EU bonds as a way to raise money for the measures. This would strengthen the integration and efficiency of the EU capital market, according to Draghi. However, Germany’s Finance Minister Christian Lindner has rejected this suggestion [[2]].
Economic Forecast: Limited Growth in 2024
According to the European Commission’s economic forecast, Austria’s economy is expected to experience limited growth in 2024, following a recession in 2023. The forecast predicts that GDP will decline by 0.8% in 2023
Austria economy
Austria’s Economy in Crisis: A Need for Reform and Competitiveness
Austria’s economy is facing a severe crisis, with the manufacturing sector experiencing its second-longest recession in over 20 years, according to a report by the economic research institute Wifo. The construction sector is also struggling, with a lack of demand and a slump in economic activity and consumption. This crisis has resulted in a significant drop in production, with losses exceeding those experienced during the financial and economic crisis of 2008/09 and the corona pandemic [[1]].
The situation is not expected to improve in the coming months, with leading indicators suggesting only subdued economic momentum for Austria and the euro area. Countries such as Austria and Germany are particularly affected by the lack of demand for industrial goods. Inflation, however, has calmed down, falling to 2.4 percent in August, which is still above the European Central Bank’s (ECB) target of two percent.
Increasing Competitiveness
To address this crisis, Wifo head Gabriel Felbermayr has called for reforms and countermeasures to increase competitiveness. He believes that costs must be cut, and the labor market and public finances must be reformed. The next government must prioritize these issues, but any attempts to introduce new policies before the National Council elections at the end of September would be futile [[1]].
Former ECB head Mario Draghi has also warned that the EU is in danger of falling behind economically, particularly compared to China and the USA. He believes that additional annual investments of 750 to 800 billion euros are needed in Europe to increase productivity and competitiveness. Draghi cited an increasing difference in economic output per capita, with the USA driven by large technology companies, while Europe is stuck in a static industrial structure [[1]].
Austria’s Economic History
Austria’s economy has undergone significant changes since the mid-1980s, when an economic crisis led to the end of the post-war economic boom [[2]]. The country has experienced several economic crises, including the bankruptcy of the Creditanstalt, the country’s most influential banking house, in May 1931, which brought Austria close to financial and economic disaster [[3]].
In recent years, Austria’s economy has grown slowly, with real GDP growing by just 0.2% in Q1, according to the European Commission. The economy is expected to recover slowly, with growth expected to remain weak this year [[2]].
Conclusion
Austria’s economy is facing a severe crisis, with the manufacturing and construction sectors particularly affected. To address this crisis, reforms and countermeasures are needed to increase competitiveness. The government must prioritize these issues and introduce policies to boost productivity and competitiveness. Austria’s economy has a history of experiencing crises, but with the right policies, it can recover and grow in the future.
References:
[1] Hermann, C. (n.d.). The Austrian model and the financial and economic crisis.
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