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The Ukraine war weighed on Austria's economy for years
Putin is screwing up the recovery: the domestic economy will lose half a percent of growth every year until 2026.
The Ukraine war weighed on Austria's economy for years
The Austrian Institute for Economic Research (Wifo) expects GDP growth of 3.9 percent for 2022. This value was already predicted in the spring forecast at the end of March and is one percentage point below the forecast that economic researchers had predicted in the autumn of the previous year. And by 2026 there will be a decline to just 1.4 percent.
The medium-term forecast now presented shows that the effects of the Ukraine crisis will continue to burden the Austrian economy for a longer period of time. The war waged by Russia against Ukraine will dampen economic growth in Austria until after the middle of the decade.
From 2022 to 2026, GDP growth will slow down by an average of half a percentage point. Instead of 2.6 percent per year, as was assumed in November, only 2.1 percent annual real growth now seems realistic. And this after the previous years had been weak due to Corona and a rebound, i.e. a strong recovery, would actually have been expected.
It will now be significantly weaker: The current medium-term forecast states: “Based on international developments, GDP growth will weaken to the medium-term trend growth of around 1½% by 2026 (Ø 2022/2026 +2.1% p.a., Ø 2010/2019 +1.5% p.a.).”
Despite this “marked weakening”, the increasing labor shortage triggered by demographic change is causing a noticeable decline in unemployment in the forecast period: According to the Wifo forecast, the unemployment rate will reach the pre-crisis level as early as 2022 and is expected to be 6% in 2026.
The Omicron wave in China and, above all, the Ukraine war are intensifying and extending the strong price increase that has already been observed on the international markets since 2021. It is mainly driven by sharply rising energy, raw material and intermediate product prices as well as a significant increase in transport costs due to capacity bottlenecks and the resulting delivery delays. According to Wifo experts, consumer prices in Austria will rise by almost 6% in 2022 and by 3¼% in 2023. However, the inflation rate is likely to be at least ¼ percentage point above the ECB's 2% target in the medium term.
Although additional spending will be made this year to cushion the loss of purchasing power as a result of high inflation and to ensure supplies for refugees from Ukraine, the deficit ratio forecast for 2022 remains unchanged at 2.4% of nominal GDP compared to the medium-term assessment from October 2021 (including tax reform). “This is due to an inflation-related increase in revenue,” the forecast said. By 2026, the budget deficit ratio is expected to fall to 0.4% of GDP.