Image: VOLKER Weihbold
“Inflation remains high, but with a clear downward trend,” said IHS economist Helmut Hofer.
This year, the IHS is still expecting an inflation rate of 7.5 percent, but by 2027 it is expected to drop to 2.3 percent. For the period from 2023 to 2027, the institute is assuming an average inflation rate of 3.8 percent, according to the current medium-term forecast presented by the IHS on Thursday.
Video: Presentation of the IHS
While the Austrian economy is still stagnating this year (+0.5 percent), growth of 1.4 percent and 1.5 percent is expected for 2024 and 2025. In 2026 and 2027, however, economic output is likely to weaken again to 1.2 percent each. For the forecast period from 2023 to 2027, the IHS expects real gross domestic product (GDP) to increase by an average of 1.2 percent per year. In the previous 5-year period, growth averaged 1.3 percent.
Private consumption will develop better than recently. “In the past five years, the development of private consumption in Austria was characterized by the corona-related restrictions and the subsequent catch-up effects,” said Hofer. High inflation is still dampening consumption this year, but overall private consumption is a key pillar of the economy, with average growth of 1.3 percent per year.
Strategies against the increasing shortage of skilled workers are required
The IHS also sees the labor market positively, although it needs comprehensive strategies to counteract the increasing shortage of skilled workers, said IHS boss Holger Bonin. Starting from 6.5 percent in 2023, the unemployment rate is likely to fall to 5.8 percent by 2027. At the same time, employment should increase by an average of 0.9 percent per year. In the case of women, older people and people with a migration background, the existing workforce potential must be exploited even more, for example through more and better childcare and qualification offensives, Bonin said in an appeal to politicians.
The forecast of the IHS is associated with considerable risks. As one point, the economists named “excessive wage settlements”, which could reduce the price competitiveness of domestic companies and worsen the quality of the business location. The IHS has taken a closer look at the connection between wage setting and inflation and does not see the danger of a wage-price spiral for Austria. From the point of view of the IHS boss, the social partners should think about longer terms of the collective agreements (currently 12 months) and also whether the wage and salary negotiations should be based on the consumer price index (CPI) or the GDP deflator. The GDP deflator is a measure of inflation calculated as the quotient of nominal and real (price-adjusted) gross domestic product (GDP).
The starting point for the KV negotiations is currently the average inflation over the last twelve months, most recently 8.6 percent. If the GDP deflator had been used, it would have been 4.9 percent. For employees, this would have meant a real loss of income. However, lower wage increases mean higher employment and competitiveness.
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