Industry recession with full order books

At first glance, the forecasts look pretty good. Wifo expects economic growth of 3.9 percent this year. The Institute for Higher Studies (IHS) is somewhat more pessimistic with growth of 3.6 percent (see chart). “But the added value in industry will shrink from the second quarter,” said Wifo boss Gabriel Felbermayr yesterday at the presentation of the economic forecast.

• ZIB 1: How could the economy in Austria run without gas from Russia? Barbara Battisti (ZIB-Wirtschaft) analyzed.

In industry, the Ukraine war and the sanctions are leading to price shocks and supply bottlenecks. Despite the very good order situation, the added value will stagnate over the year. While industry was the mainstay of the economy in the past two years, tourism and private consumption are to take over this function. “Tourism has great potential to catch up, but we are still a long way from the level of 2019,” said Felbermayr.

In the case of private consumption, the driver is the reduction in the savings rate, which was exceptionally high in the Corona years and will now be reduced to a more normal level. For this year, Wifo expects consumer spending to grow by 3.9 percent.

Felbermayr does not expect that the war in the Ukraine will really drive people to save again, because the high inflation will encourage consumers to make advance purchases. “If you have to assume that many things will become more expensive, then buy now,” said the economist.

The researchers at both institutes are convinced that inflation will continue to accelerate. Felbermayr expects strong price increases not only for energy, but also for food.

• ZIB 1: Economic forecast revised downwards

Recession with gas import freeze

If imports were stopped for Russian gas and oil, Austria would fall into a recession with a possible two, three or four percent decline in economic output. Felbermayr warned of this. The damage, especially in the case of a gas boycott against Russia, would be enormous if he supported the rejection of such a step by the heads of government of Austria and Germany, the Federal Chancellors Karl Nehammer and Olaf Scholz.

In the short term, the effects of such a step would be very large, although no exact figures are available. In the longer term, switching to other suppliers could be expensive. “If we can no longer get cheap Russian gas, entire branches of industry will be in question,” Felbermayr referred to the plastics industry and other sectors, which are strong in Upper Austria.

The effects of the current situation on the labor market are not so dramatic. Wifo and IHS even expect the unemployment rate to fall further. Because it is difficult to find suitable specialist staff, industrial companies should try to keep staff in the company through short-time work. The wage round in the fall will be “extremely difficult”. Inflation calls for strong wage increases, while at the same time companies are heavily burdened by high energy prices. “There is currently not much to distribute,” said Felbermayr. (hn)