Austria projection note OECD Economic Outlook November 2022

76 

Austria Growth is expected to be 4.5% in 2022, but slow sharply to 0.1% in 2023 and 1.2% in 2024. Headline inflation is broad-based and expected to peak towards the end of 2022, before easing over 2023 and 2024. Real disposable incomes are falling in 2022, depressing private consumption, but should recover as wages catch up with inflation. Low external demand and a deterioration in business confidence will weigh on private investment. Employment growth will weaken, but elevated labour shortages are expected to prevent a significant increase in unemployment.

The fiscal stance will tighten over the projection period. The withdrawal of the pandemic-related support has helped to narrow the primary budget deficit. New support measures to cushion energy price inflation are expected to fade out in 2023-24. Some of these measures aim at lifting growth by reducing labour costs and are welcome. Discretionary measures to compensate for high energy prices need to be better targeted to avoid weakening price signals and to limit fiscal costs. Activating existing labour reserves would help remedy persistent labour shortages.

Growth is slowing amidst rising inflation Output expanded strongly in the first half of 2022, but will contract in the second half of the year, with GDP declining slightly in the third quarter. Accelerating producer and consumer price inflation has weighed on business and consumer sentiment. Headline inflation reached 11% in October and is broadening, with core inflation accelerating. Producer price inflation also continues to rise and will add pressure on consumer prices. Collective bargaining in the metals industry, usually an important reference point for wage setting in other industries resulted in wage increases of 7.4% for a one-year period starting from November 2022.

Austria

1. Long-term average cover January 2014 to September 2022. The WIFO index ranges from -100 to 100, indicating that a positive (negative) value signals an optimistic (pessimistic) business climate.

2. Producer price index refers to total industrial activities.

Source: OECD Main Economic Indicators database; and WIFO Business cycle survey.

StatLink 2 https://stat.link/4iqd8s

OECD ECONOMIC OUTLOOK, VOLUME 2022 ISSUE 2: PRELIMINARY VERSION © OECD 2022

 77

Austria: Demand, output and prices 2019

Austria GDP at market prices* Private consumption Government consumption Gross fixed capital formation Final domestic demand Stockbuilding¹ Total domestic demand Exports of goods and services Imports of goods and services Net exports¹ Memorandum items GDP deflator Harmonised index of consumer prices Harmonised index of core inflation² Unemployment rate (% of labour force) Household saving ratio, net (% of disposable income) General government financial balance (% of GDP) General government gross debt (% of GDP) General government debt, Maastricht definition³ (% of GDP) Current account balance (% of GDP)

2020

_ _ _ _ _ _ _ _ _

2022

2023

2024

Percentage changes, volume (2015 prices)

Current prices EUR billion

397.0 204.6 77.2 98.5 380.4 1.6 382.0 222.0 207.0 15.1

2021

-6.6 -7.9 -0.5 -5.0 -5.7 0.1 -5.5 -11.4 -9.2 -1.6

4.7 3.4 7.9 8.7 5.7 0.7 6.5 10.2 13.7 -1.4

4.5 3.8 -1.3 -0.5 1.5 1.0 2.4 13.6 7.5 3.5

0.1 0.7 -3.5 1.0 -0.1 0.5 0.0 2.3 1.4 0.5

1.2 1.9 -0.3 1.4 1.3 -0.8 0.5 4.8 3.8 0.7

2.5 1.9 4.3 6.0 3.0 1.4 2.8 8.5 6.7 3.6 2.0 2.3 4.9 5.1 2.4 5.4 6.2 4.9 5.1 5.2 13.3 12.0 6.1 7.0 7.3 -8.0 -5.9 -3.5 -2.7 -2.0 112.0 105.6 104.5 103.1 102.0 83.1 82.3 81.2 79.8 78.7 3.0 0.4 0.7 1.0 1.8

* Based on seasonal and working-day adjusted quarterly data; may differ from official non-working-day adjusted annual data.

1. Contributions to changes in real GDP, actual amount in the first column.

2. Harmonised index of consumer prices excluding food, energy, alcohol and tobacco.

3. The Maastricht definition of general government debt includes only loans, debt securities, and currency and deposits, with debt at face value rather than market value.

Source: OECD Economic Outlook 112 database.

StatLink 2 https://stat.link/ymrxe5

The Austrian economy remains vulnerable to disruptions in gas supply as around 50% of the gas consumed is imported from Russia, down from 80% at the beginning of 2022. As of October 2022, gas reserves cover around 90% of annual gas consumption. This includes the new public strategic gas reserve that could cover two full winter months. Around 60% of the gas can be allocated to Austrian households and businesses. Global energy and commodity price rises have hit households and firms hard, notably in export-oriented manufacturing sectors. As of October 2022, Austria has received 83 000 refugees from Ukraine. The authorities have allocated fiscal support of around 0.13% of GDP (2022) and 0.12% of GDP (2023) for humanitarian help for Ukrainian refugees and their integration in domestic labour markets.

Fiscal spending partly offsets energy price inflation The primary budget deficit is expected to narrow over the projection period. Fiscal policy shifted from pandemic-related support to measures to compensate for energy price inflation and to lift potential growth, mainly by transforming the economy towards climate neutrality. In the first half of 2022, three support packages, amounting to a budget envelope of 8% of 2021 GDP, have been implemented. They comprise discretionary measures for 2022 and 2023 to mitigate high energy prices on households and firms, including several subsidies, energy vouchers and tax cuts. Furthermore, an electricity cap for every household will be in effect from December 2022 until mid-2024. New structural measures include the establishment of a strategic gas reserve and, from 2023 on, the automatic adjustment of personal income

OECD ECONOMIC OUTLOOK, VOLUME 2022 ISSUE 2: PRELIMINARY VERSION © OECD 2022

78  tax brackets to inflation, and a 0.2 percentage point reduction in indirect labour costs. Further, the eco-social tax reform combines an increase in carbon taxes with lower personal and corporate income taxes to be implemented gradually over the projection horizon. Funds from the European Recovery and Resilience Facility, roughly 0.8% of GDP until 2026, will mainly support investment in renewable energy and digitalisation.

Economic growth will be weak Output will recover gradually and grow by 0.1% in 2023 and 1.2% in 2024. Accelerating producer price inflation, elevated uncertainty over the future course of the war in Ukraine and low external demand will weigh on business investment and exports. Inflation will decline to 3.6% in 2024 with financial conditions tightening and the passing of the energy shock but remain elevated over the projection period. Private consumption will recover in 2024 as real disposable incomes gradually pick up. The labour market may nevertheless remain tight, as shortages of skilled labour constrain activity and keep the unemployment rate low. Downside risks to the projections remain very high. Over the short term, gas imports from Russia cannot be substituted from other sources and a complete halt of imports would have a significant adverse impact on growth. A worsening of the pandemic would interfere with the winter tourism season and weigh on activity in services sectors.

Reforms could make growth stronger and more sustainable Reducing severe skill shortages is vital to boost growth. Activating existing, but yet untapped, labour reserves would be key. This would require more efforts to promote female employment, for example by improving on the availability and quality of early child education and care services throughout the entire country. Better incentives to continue working at an older age, and ensuring good working conditions for elderly workers, would also help. Programmed public investments to reduce greenhouse gas emissions will make growth more sustainable and enhance energy security. However, more efforts are needed to comply with the ambitious 2040 climate neutrality goal. While the eco-social tax reform is a welcome step, harmonising and raising carbon prices across all economic sectors, along with complementary regulatory and emission savings investment schemes, is necessary. Support measures to counteract high energy prices need to be better targeted at households that are highly exposed to rising living costs, while not undermining incentives to reduce the consumption of fossil fuels.

OECD ECONOMIC OUTLOOK, VOLUME 2022 ISSUE 2: PRELIMINARY VERSION © OECD 2022