The inflation rate according to the Harmonized Index of Consumer Prices (HICP) will increase to 2.3 percent this year, after 1.4 percent in the previous year, Wifo said on Thursday. In addition to strong consumer demand, the decisive factor here is the passing on of the high prices for raw materials and certain goods.
According to Wifo, inflation according to the HICP criteria should remain high in 2022, not least because of the above-average capacity utilization of the economy as a whole, which is driving domestic price dynamics. The Institute for Advanced Studies (IHS) assumes – like Wifo – an increase in inflation according to the domestic calculation method to 2.2 percent this year and then 2.0 percent next year. Most recently, in May, inflation in Austria was 2.8 percent, and once the oil price base effect subsides, inflation will slow down a little IHS.
Favorable development also in 2022
For the labor market, Wifo expects the favorable development to continue in the coming year 2022. Since employment has already reached the pre-crisis level again this spring, a slowdown in growth is expected: According to this, the number of active active employees should increase by 2.1 percent in 2021 and by 1.6 percent in 2022. The labor supply will continue to rise in both forecast years. Because unemployment will still be above the pre-crisis level by the end of 2022, that will last IHS further measures against long-term unemployment as well as against the mis-match on the labor market and for a decrease in structural unemployment are necessary.
Corona is still causing great uncertainty
From Wifo’s point of view, the forecasts for further economic development still depend largely on future corona infection events. The uncertainty about the further course of the pandemic is still considerable – there is therefore the risk of major setbacks throughout the forecast period if the Covid-19 virus should mutate in a way that significantly reduces the effectiveness of the current vaccines. The longer it takes to overcome the pandemic worldwide, the greater the risk. In addition, there is still uncertainty about the development of corporate solvency as soon as public support programs are scaled back and debt moratoriums are ended, according to Wifo.
Significant economic impulses are likely to come from the high utilization of the investment premium. According to Wifo, the economic upswing is supported by all components of demand and supply. In 2022, the domestic economy will be boosted primarily by accommodation and gastronomy, because the industrial economy will then weaken somewhat. Tourism-related sectors such as trade, transport and other services should then also benefit. This year, retailers should be able to benefit primarily from the backlog of consumption. Wifo sees the trade, which slumped by 4.8 percent in the previous year, grow by 6.0 percent this year and by a further 5.0 percent next year. For private consumption (previous year -9.2 percent), real increases of 5.0 and 5.5 percent are expected in 2021/22.
The recent bottlenecks in primary products are only likely to dampen expansion in industry and construction for a short time, especially since they are only based on supply chain problems, stresses the Wifo. With the expected stabilization of demand, the delivery problems should also subside and from the 4th quarter of 2021 should no longer have a dampening effect on the industrial and construction sector. The production of goods, which slumped by 7.1 percent last year, should increase by 9.2 percent this year and by 4.2 percent in 2022, estimates Wifo. Gross fixed capital formation, which fell by 5.7 percent in 2020, is expected to pick up again sharply, as should equipment investments, which were 7.9 percent lower. For gross fixed investments, the institutes are anticipating a 7 and 6 percent increase in 2021 and a 4 percent increase in 2022. Equal to 10 (Wifo) and 8 percent (IHS) investment in equipment is expected to climb in real terms this year, by 5.9 (Wifo) or 5.0 percent (IHS).
Jane Stock is a technology author, who has written for 24 Hours World. She writes about the latest in technology news and trends, and is always on the lookout for new and innovative ways to improve his audience’s experience.
