Austria -Economic Outlook June 2020

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Austria The COVID-19 outbreak has been relatively contained so far and the lockdown started to be gradually lifted in mid-April. GDP is projected to contract by 6.2% in 2020 if there are no further virus outbreaks (the single-hit scenario), and by over 7% if there is a renewed outbreak later this year (the double-hit scenario). Economic activity will pick up as confinement measures ease, but the economic recovery will nevertheless take time, with output still below its pre-crisis level by the end of 2021. Unemployment, and the number of people on short-time work schemes, has soared and is projected to remain high through the projection period. Given additional spending as part of the policy response and weaker tax revenues, a large government budget deficit will open up. The comparatively low rate of inflation is expected to slow in the near term, picking up somewhat in 2021.

The swift policy response has ensured ample support for firms and households through liquidity injections, tax deferrals, credit guarantees and the short-time working scheme. Policymakers should ensure that the support programmes evolve according to the health and economic situation and continue to complement and replace existing broad measures, with more focussed support to limit adverse side-effects on the efficient allocation of resources.

Restrictions are being gradually lifted after the lockdown The COVID-19 virus reached Austria in the early part of the year. The number of cases peaked at the end of March and has declined steadily since then. Due to a health system with relatively high capacity and very good accessibility, fatalities relative to population due to COVID-19 have so far been low. With a relatively large elderly population, a key challenge has been the propagation of the virus in care homes.

Austria Another virus outbreak would dent the recovery

Unemployment increases due to the Covid-19 crisis

Real GDP

Projected unemployment rate

Index 2019Q4 = 100, s.a.

103

100

November 2019 projections Single-hit scenario

Single-hit scenario

Double-hit scenario

Double-hit scenario

% of labour force 7.5

6.0

97

4.5

94

3.0

91

1.5

88

2019

2020

2021

0

0

2020

2021

0.0

Source: OECD Economic Outlook 107 database StatLink 2 https://doi.org/10.1787/888934139005

OECD ECONOMIC OUTLOOK VOLUME 2020 ISSUE 1: PRELIMINARY VERSION Š OECD 2020

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Austria: Demand, output and prices (double-hit scenario) 2016

Austria: double-hit scenario 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) General government financial balance (% of GDP) General government gross debt (% of GDP) General government debt, Maastricht definition (% of GDP) Current account balance (% of GDP)

2017

Current prices EUR billion

2018

2019

2020

2021

Percentage changes, volume (2015 prices)

357.4 186.9 70.3 82.5 339.7 3.8 343.5 187.8 173.8 14.0

2.6 1.5 1.1 3.9 2.0 0.1 2.1 5.2 4.9 0.3

2.3 1.1 0.8 3.9 1.7 0.2 1.8 5.6 4.5 0.8

_ _ _ _ _ _ _ _

1.1 2.2 2.1 5.5 -0.8 102.0 78.1 1.5

1.7 2.1 1.8 4.8 0.2 96.6 73.9 2.3

1.5 1.3 0.7 2.8 1.5 0.1 1.6 2.6 2.7 0.1

-7.5 -7.4 2.2 -8.0 -5.6 -1.5 -7.0 -11.9 -11.5 -0.6

3.2 3.7 1.4 3.8 3.2 0.0 3.2 9.7 10.2 0.1

1.7 0.6 0.8 1.5 0.8 1.1 1.7 0.9 1.0 4.5 6.0 5.7 0.7 -9.8 -5.5 94.7 110.0 113.1 70.4 85.7 88.7 2.6 2.2 1.9

* 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.

Source: OECD Economic Outlook 107 database.

StatLink 2 https://doi.org/10.1787/888934137257

The Austrian authorities enforced a country-wide lockdown from mid-March to mid-April. The lockdown comprised closures of schools and universities, cancellation of public events and operational restrictions on most type of businesses. In the second half of April, the lockdown was eased gradually. Schools and shops not already reopened resumed activity in the beginning of May. Residents are obliged to wear a mask in public transport and public indoor spaces, such as shops. Restaurants and hotels reopened in mid-May and end of May respectively. Given that German tourists made up around 37% of all overnight stays in Austria in 2019, an envisaged reopening of borders to Germany before the summer would provide some relief for the Austrian tourism sector.

Unemployment and short-time work have soared According to a recent flash-estimate, the effective shutdown of many sectors led to a contraction of 2.6% in GDP in the first quarter of 2020 compared to the previous quarter. The number of registered unemployed workers increased to over 500 thousand (end of April) from around 350 thousand at the end of 2019. This will lead to a jump in the unemployment rate from 4.5% to 5.5%. There were 1.4 million applications filed for short-time work schemes. In addition to the manufacturing sectors, which are highly integrated in European supply chains, the hospitality sector, which contributes around 7-8% to total value added, is heavily affected. The number of tourist overnight stays diminished drastically in March, by around 60% relative to February and by 9% from the same period last year.

OECD ECONOMIC OUTLOOK VOLUME 2020 ISSUE 1: PRELIMINARY VERSION Š OECD 2020

142 _

Austria: Demand, output and prices (single-hit scenario) 2016

Austria: single-hit scenario 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) General government financial balance (% of GDP) General government gross debt (% of GDP) General government debt, Maastricht definition (% of GDP) Current account balance (% of GDP)

2017

Current prices EUR billion

2018

2019

2020

2021

Percentage changes, volume (2015 prices)

357.4 186.9 70.3 82.5 339.7 3.8 343.5 187.8 173.8 14.0

2.6 1.5 1.1 3.9 2.0 0.1 2.1 5.2 4.9 0.3

2.3 1.1 0.8 3.9 1.7 0.2 1.8 5.6 4.5 0.8

_ _ _ _ _ _ _ _

1.1 2.2 2.1 5.5 -0.8 102.0 78.1 1.5

1.7 2.1 1.8 4.8 0.2 96.6 73.9 2.3

1.5 1.3 0.7 2.8 1.5 0.1 1.6 2.6 2.7 0.1

-6.2 -6.1 2.0 -7.0 -4.7 -1.5 -6.2 -8.7 -9.0 -0.1

4.0 4.4 1.0 5.8 4.0 0.0 4.1 9.4 9.9 0.1

1.7 0.5 0.8 1.5 0.8 1.3 1.7 1.0 1.2 4.5 5.8 5.2 0.7 -7.3 -3.2 94.7 106.7 107.2 70.4 82.4 82.9 2.6 2.6 2.2

* 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.

Source: OECD Economic Outlook 107 database.

StatLink 2 https://doi.org/10.1787/888934137276

The policy response has been swift The policy response entailed a significant fiscal stimulus. The authorities announced several measures to support businesses, households and the health sector in mid-March, which were accompanied by an easing of euro area monetary policy. The total COVID-19 budget envelope is EUR 38 billion (around 9% of GDP), including credit guarantees and tax deferrals, and is gradually being implemented and operationalised. Credit guarantees (up to EUR 9 billion) are provided for up to 100% of loan amounts to help businesses to prevent liquidity shortfalls. A tranche of initially EUR 4 billion was dedicated to fund disbursements on medical supplies, to support the care-taking system, hardship cases across particularly vulnerable businesses and financing of the short-term work scheme. Employers can reduce working hours to as low as 10%, while employees receive 80-90% of their regular pay. Due to a high number of applications, the funds for the short-time work scheme have already been increased to EUR 12 billion. In addition to these measures, the authorities announced a recovery package for the hospitality sector of EUR 500 million in mid-May.

GDP could contract by more than 7% in 2020 The lockdown led to a decline of around 30% of economic activity until it started to be eased. In case of a second outbreak of the virus, GDP would decline by over 7% in 2020, whereas in the single-hit scenario, which assumes no further outbreaks and that restrictions continue to be eased in the second half of the year, GDP will decline by 6.2% in 2020. Trade and investment will remain particularly weak given continued OECD ECONOMIC OUTLOOK VOLUME 2020 ISSUE 1: PRELIMINARY VERSION Š OECD 2020

_ 143 uncertainty in both scenarios. Employment will recover and this will allow many workers on the short-time working scheme to get back to work. Nevertheless, at the end of 2021, unemployment will remain at 5.7% in the double-hit scenario and at 5.2% in the single-hit scenario. Inflation will weaken in the short run.

Risks remain high. In particular, the tourism sector is a key employer and exporter, but it consists mainly of SMEs, often family-owned and usually highly leveraged, implying rather small liquidity buffers. If confinement measures and travel restrictions continue to prevent tourists from travelling to Austria over the summer, a wave of insolvencies in that sector may follow, with adverse consequences on aggregate output, employment and exports.

Policymakers need to support the recovery Policymakers need to support workers and firms while activity remains disrupted and during the recovery phase. However, they also need to ensure that well-intended policy measures do not entail adverse longer-run side effects, and be prepared to unwind public support in a timely manner. This concerns particularly the withdrawal of government guarantees for corporate loans. Policymakers should prevent otherwise viable firms from exiting the market if this is due solely to a temporary shortfall in liquidity.

However, a prolonged government guarantee may increase fiscal costs and risk negative effects on the efficient allocation of resources and productivity from enterprises that only remain in business due to public support. Policymakers should instead focus on a fast resolution of insolvent firms, either through debt forgiveness or from conversion of corporate debt into equity. Policymakers should consider the possibility of re-adjusting the economy in a more sustainable and inclusive manner, for example by beginning to implement measures to counter climate change or using more digital services in education and government.

OECD ECONOMIC OUTLOOK VOLUME 2020 ISSUE 1: PRELIMINARY VERSION Š OECD 2020