Second wave of COVID-19 pandemic delays economic recovery. Economic outlook for Austria from 2020 to 2023 (December 2020)

Over the summer months, the Austrian economy recovered faster than expected from the deep slump observed in the first half of 2020. However, the current second wave of coronavirus infections in Austria caused a renewed downturn in the fourth quarter of 2020. Still, this downturn is likely to be only half as severe as the spring 2020 contraction. The further course of the COVID-19 pandemic will have a substantial impact on the future growth path of the Austrian economy. The Oesterreichische Nationalbank (OeNB) expects a strong economic recovery that rests on the following assumptions: a third wave of coronavirus infections in spring 2021 can be prevented; the related health policy measures will be phased out gradually over the first half of 2021; and a medical solution will be successfully implemented by end-2021. After real GDP growth decreased by 7.1% in Austria in 2020, the OeNB expects growth rates of 3.6% in 2021, 4.0% in 2022 and 2.2% in 2023. In the second half of 2022, Austrian real GDP growth is expected to be back at pre-crisis levels. After having surged in 2020, the saving ratio in Austria is expected to decline again quickly, thus fostering the recovery of private consumption. As a result, Austria’s growth outlook for 2020 appears virtually unchanged against the OeNB’s economic outlook of June 2020. Growth figures for 2021, in contrast, must be revised downward by 1.3 percentage points in view of the strong second wave of the COVID-19 pandemic and the related second lockdown. On the other hand, growth rates for 2022 are revised upward by 1.3 percentage points as the economic upturn is now projected to begin later in 2021 than forecast in the June 2020 outlook. The unemployment rate (national definition) will climb to 10.2% in 2020 and go down only marginally to 8.9% by 2023. A stronger rise in unemployment will be prevented by short-time work schemes. Despite the massive economic slump, HICP inflation in 2020 will decrease only moderately to 1.3%. Over the remaining forecast horizon, it will increase to 1.7%. The general government deficit (Maastricht definition) is forecast to rise to 9.2% of GDP in 2020, reflecting comprehensive fiscal stimulus packages and the effect of automatic stabilizers, before shrinking markedly to 1.4% of GDP by 2023.