Relatively Mild Recession in 1993. Austria's Economy in 1993
In Austria the recession of 1993 was mild relative to other countries. Real GDP declined by 0.3 percent. Exports, tourism, and investment in machinery were hard hit by the slump. Consumption and construction activity helped to stabilize the economy. Austria, with its small, open economy, was not able to escape the effects of the recession in Europe and of the massive devaluation of some currencies. Economic activity was also hampered by the discrimination of exports into the EU by the EU's free trade treaties with Eastern Europe. Nonetheless, Austria's economy performed reasonably well in an international comparison; just as in 1975 and in 1981, Austria was better able to cope with the global recession than were its neighboring countries. GDP shrank only marginally (0.3 percent), while dropping by 1.9 percent in West Germany. The impact of the international recession was most pronounced in exports, tourism, and in investment outlays. Exports to Western Europe plunged, but these losses were partly offset by gains in overseas countries and Eastern Europe. Manufacturing firms reacted quickly to the decline in foreign orders. They cut production (–3 percent) and slashed capital outlays – the most fickle economic aggregate – by as much as one fifth. 6½ percent of the jobs in manufacturing were lost as a consequence. The unfavorable external effects were mitigated, however, by some domestic factors. The government was willing to accept a higher budget deficit in the recession. The increase in transfer payments to households stabilized disposable income and served to maintain consumer confidence; the propensity to consume rose despite the recession. Private consumption helped to prop up economic activity. Moreover, public construction projects and housing promotion programs implemented by the provinces stabilized the construction sector. The economic slump had a very strong impact on the budget deficit; at AS 98 billion, it was 50 percent higher than scheduled. The increase in the deficit was mostly due to cyclical factors: lower tax receipts and social security contributions, and higher unemployment insurance payments. The high deficit renders the task of consolidating the budget in the medium term more difficult. The labor market also deteriorated in the wake of the recession, which triggered a wave of bankruptcies. In 1993 the unemployment rate rose by ¾ percentage points but, with a rate of 4.3 percent, ranked low in an international comparison. Moreover, Austria's economy was not burdened with high youth employment, a phenomenon characteristic of many European countries. The development of prices was less satisfactory. The recessionary slack in demand, stable import prices, and modest wage settlements would have suggested a more pronounced deceleration of prices at the retail level. The main factors standing in the way of an inflation slowdown were a lack of competition in some sectors and a steep rise in rents. The balance in the current account turned negative in 1993, mostly as a result of a weak tourism season. The size of the deficit is not of concern, however. The domestic economy bottomed out in the summer of 1993; since then more and more signs have pointed to a recovery. Foreign demand has been on the increase in the wake of the rebound in the U.S.A. Some important preconditions for an upswing have also improved: interest rates declined markedly in the second half of 1993 and the term structure returned to normalcy, i.e., short-term interest rates fell below long-term interest rates. This development favors investment in physical assets over short-term financial assets.
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Volume (Year): 67 (1994)
Issue (Month): 4 (April)
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