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Energy price shock poses additional challenge to Austria’s price competitiveness

Author

Listed:
  • Ursula Glauninger

    (WIFO)

  • Thomas Url
  • Klaus Vondra

    (Oesterreichische Nationalbank, Economic Analysis Division)

Abstract

This article reports on the latest update of Austria’s effective exchange rate indices, which aggregate bilateral exchange rates and relative prices or costs into indicators of Austria’s short- to medium-term international competitive position. The weighting scheme on which the indicators are based uses bilateral trade data for Austria’s 55 most important trading partners. With the latest update, the three-year averaging period was moved forward to 2016-2018. The main results are as follows: Based on the recalculated country weights, we confirm the preliminary finding of a medium-term worsening of Austria’s competitive position, although alternative price indices would appear to provide conflicting signals. In particular, measures based on producer prices and unit labor costs indicate competitiveness gains, while the HICP/CPI-based index shows marked losses. These diverging signals, however, merely reflect data availability at the current edge. With regard to the geographical focus of Austria’s international trade relations, we observe a further shift toward overseas markets in the US dollar area and China, away from Western Europe and Russia. The real effective exchange rate for the tourism industry, which we developed during the previous update and enhanced during this update, reflects a more pronounced appreciation in the tourism sector than in the service sector as a whole. However, according to the latest figures on overnight stays this loss in price competitiveness has had no significant dampening effect on tourism demand in recent months. Finally, we address the economic costs of Austria’s current inflation differential to the euro area, which has induced a real appreciation. In two simulations, we quantify realized effects and calculate expected future losses driven by higher unit labor costs. In total, we find that the loss in price competitiveness may cause the Austrian economy to shrink by around ¾ to 1 percentage point between 2022 and 2025.

Suggested Citation

  • Ursula Glauninger & Thomas Url & Klaus Vondra, 2023. "Energy price shock poses additional challenge to Austria’s price competitiveness," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue Q2-Q3/23, pages 67-97.
    • Handle: RePEc:onb:oenbmp:y:2023:i:q2-q3/23:b:3
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    References listed on IDEAS

    as
    1. Josef Baumgartner & Marcus Scheiblecker & Thomas Url, 2022. "Maintaining Credibility is Currently the Top Priority," WIFO Studies, WIFO, number 70560.
    2. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    3. Walpurga Köhler-Töglhofer & Christa Magerl, 2013. "Revision of Price/Cost Competitiveness Indicators for Austria," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 93-119.
    4. Marin, Dalia, 1985. "Structural Change through Exchange Rate Policy," Munich Reprints in Economics 19227, University of Munich, Department of Economics.
    5. Boz, Emine & Casas, Camila & Georgiadis, Georgios & Gopinath, Gita & Le Mezo, Helena & Mehl, Arnaud & Nguyen, Tra, 2022. "Patterns of invoicing currency in global trade: New evidence," Journal of International Economics, Elsevier, vol. 136(C).
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    Cited by:

    1. Michael Peneder & Benjamin Bittschi & Anna Burton & Angela Köppl & Thomas Url, 2024. "The WIFO Radar of Competitiveness for the Austrian Economy 2023," WIFO Reports on Austria, WIFO, issue 2, January.
    2. Michael Peneder & Benjamin Bittschi & Anna Burton & Daniela Kletzan-Slamanig & Thomas Url, 2026. "The WIFO Radar of Competitiveness for the Austrian Economy 2025. Focus Topic: Price Trends in Tourism as a Competitive Factor," WIFO Reports on Austria, WIFO, issue 3, February.
    3. Michael Peneder & Benjamin Bittschi & Anna Burton & Daniela Kletzan-Slamanig & Thomas Url, 2025. "Das WIFO-Radar der Wettbewerbsfähigkeit der österreichischen Wirtschaft 2025. Schwerpunktthema: Die Preisentwicklung im Tourismus als Wettbewerbsfaktor," WIFO Monatsberichte (monthly reports), WIFO, vol. 98(12), pages 651-665, December.
    4. Michael Peneder & Benjamin Bittschi & Anna Burton & Angela Köppl & Thomas Url, 2023. "Das WIFO-Radar der Wettbewerbsfähigkeit der österreichischen Wirtschaft 2023," WIFO Monatsberichte (monthly reports), WIFO, vol. 96(12), pages 845-856, December.

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    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

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