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Will the Great Recession Lead to a Lasting Impact on Potential Output in Austria?

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Author Info

  • Paul Gaggl

    ()
    (University of California at Davis, Department of Economics)

  • Jürgen Janger

    ()
    (Oesterreichische Nationalbank)

Abstract

Based on the European Commission’s (2009) projections for potential output, we calculate a permanent potential output loss of between 4% and 6% until 2013, while we expect that the growth rate will eventually return to its precrisis level of close to 2% in the medium run before the effects of population aging set in. We do not expect high growth rates of actual GDP during the recovery. In a more pessimistic view, the effects of the crisis may seamlessly link with the effects of population aging on potential output, implying a decrease in trend potential output growth to about 1.5% by 2030. In an optimistic scenario, by 2011 most of the structural effects of the crisis will have disappeared and productivity growth will accelerate by 2020 to compensate for declining labor input, stabilizing the path of potential output. While uncertainty is high, it is likely that anti-climate-change policies, energy scarcity and an increase in both competition and demand from emerging markets will provide powerful incentives to innovate and invest. Adequate economic policies will be required in order to respond positively to these incentives. The crucial role of policies in raising medium-term output after severe recessions is also emonstrated by countries such as Finland, Sweden and Japan.

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File URL: http://www.oenb.at/dms/oenb/Publikationen/Volkswirtschaft/Monetary-Policy-and-the-Economy/2009/Monetary-Policy-and-the-Economy-Q3-09/chapters/mop_2009_q3_analyses02_tcm16-143519.pdf
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Bibliographic Info

Article provided by Oesterreichische Nationalbank (Austrian Central Bank) in its journal Monetary Policy & the Economy.

Volume (Year): (2009)
Issue (Month): 3 ()
Pages: 26–52

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Handle: RePEc:onb:oenbmp:y:2009:i:3:b:2

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Related research

Keywords: potential output; financial crisis;

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Cited by:
  1. Christian Ragacs & Klaus Vondra, 2010. "Subdued Economic Recovery given Necessary Fiscal Consolidation: Economic Outlook for Austria from 2010 to 2012 (June 2010)," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 6–32.

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