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UniCredit Bank Austria Business Indicator:
Major economic slump in Austria in 2020 driven by the coronavirus crisis set to be followed by a recovery period characterised by strong growth in 2021

  • The UniCredit Bank Austria Business Indicator was slashed by half in March 2020, to 0.8 points, though this figure does not reflect the full effects of the coronavirus crisis
  • Austria's economy is in the midst of a recession following the supply shock triggered by the interruption of global supply chains and the lockdown scenario
  • We anticipate a decline of around 9% in Austria's GDP for 2020 as a whole, characterised by a sharp economic downturn in H1 followed by the beginnings of countermovement from the middle of the year
  • The economy is expected to enter a recovery period in 2021 with growth of around 8%, but Austria will not see a return to pre-crisis levels until mid-2022
  • A slight East-West differential is likely in relation to the effects on the individual Austrian states
  • The accommodation and catering sectors will see the greatest effects, with losses of up to 40% for the year as a whole
  • There will be a significant impact on the labour market despite the implementation of reduced working hours and liquidity measures for companies: The rate of unemployment is set to grow to more than 13% during the crisis and will still be above the pre-crisis level at the end of 2021
  • Confidence in the forecast is low due to the challenge of making reliable assumptions about future developments

After an optimistic start to 2020, there has been a significant downturn in economic sentiment in Austria. "The UniCredit Bank Austria Business Indicator Index has dropped to 0.8 points, declining by half within a single month. Despite this being one of the worst monthly declines on record, it does not actually reflect the full extent of the effects of the coronavirus crisis, owing to the timing of data collection", says UniCredit Bank Austria Chief Economist Stefan Bruckbauer, adding: "Austria is already in the midst of a sharp recession, triggered abruptly by the shutdown of large parts of the economy since mid-March." The initial disruption to the economy on the supply side, caused by interruption of global supply chains, is now joined by the impact of restrictions on business activity among domestic businesses as a result of the lockdown scenario.

"We anticipate a decline of around 9% in Austria's GDP for 2020. This signals the likelihood of an economic slump more than twice as severe as that seen during the 2009 financial crisis. Furthermore, this prediction is based on the assumption that the measures already implemented succeed in slowing the spread of coronavirus over the long term and that a substantial easing of the restrictions, going further than the current concessions, can be implemented by June at the latest", says Bruckbauer.

Following a positive start to the year, the Austrian economy has been fully in the grip of the coronavirus crisis since mid-March, to the extent that the figures for Q1 2020 point to a decline in economic performance even at such an early stage. Although there are now signs that the curve of new infections is flattening and the government is set to begin easing restrictions from mid-April, the Austrian economy will only be able to achieve around 75% to 80% of normal performance in Q2. As a result, GDP will drop by almost 20% on the figure seen at the start of the year, driven by sharp declines in private consumption and investment activity. Even if it is only possible to continue easing the restrictions very gradually, clear countermovement from economic low is likely in H2, with growth rates of up to 8% compared with the previous quarter. Given the uncertain environment, however, there will not be an immediate and complete recovery of either consumer demand or investment.

"We are working on the optimistic assumption of V-shaped economic development. The major slump seen from March onwards is set to be followed by a period of strong growth in H2 2020, and economic growth of up to 8% is expected in 2021. Nevertheless, it looks likely that by the end of 2021 the Austrian economy will still be undershooting the level achieved prior to the coronavirus crisis by around 2%", says Bruckbauer. The economists at UniCredit Bank Austria estimate that the comprehensive monetary and fiscal policy measures implemented will go a long way to limiting the long-term economic impact but will not be able to offset it completely. Furthermore, some sectors of the economy are likely to see longer-term restrictions and, if the risk of infection persists, a lasting decline in demand. There is also a risk of existing structural changes being implemented more quickly. Although this may have positive effects in the medium term, it could lead to additional burdens in the short term.

Losses of up to 40% in some areas
On the assumption that economic activity is gradually revived from May onwards, nominal added value in Austria for 2020 as a whole is likely to be 10% lower, the equivalent of around 36 billion euro, than it would have been had there not been a pandemic scenario. However, the impact of the measures to contain the spread of the coronavirus will vary across sectors.

The biggest losses will be suffered in sectors that have had to completely cease business activity, e.g. by the majority of personal service providers, accommodation and catering businesses, organisers of cultural and sporting events, and numerous retailers. Moreover, sectors that have seen falling demand as a result of the lockdown and the lack of freedom to travel will also be faced with disproportionately high revenue losses. Transportation companies and travel agencies in particular will be affected, and these businesses are also unlikely to benefit from the recovery effects when the measures are eased.

"We anticipate that sectors that have been affected by temporary closures and that are unlikely to benefit from recovery effects will see a decline in value creation of up to 40% for 2020 as a whole. Conversely, some sectors will experience few losses, if any. This circle includes, for example, the pharmaceuticals industry, the food retail trade, the public sector and chemists and pharmacies", says UniCredit Bank Austria economist Walter Pudschedl.

All federal states are strongly affected
The economic consequences of the measures to contain the spread of the coronavirus will vary across the Austrian federal states depending on the industries on which each state relies. "Generally speaking, all of the Austrian federal states are quite similarly affected by the immense negative impacts of the coronavirus crisis. However, there does appear to be a slight East-West differential, with a disproportionately severe impact in the tourism strongholds of Tyrol, Salzburg and Vorarlberg. By contrast, the effects are likely to be less marked than average in the administrative centre Vienna and in Lower Austria and Burgenland", says Pudschedl.

Based on today's data, Tyrol is the Austrian region that is facing the worst decline in its real-terms economic performance for 2020. Salzburg and Vorarlberg, to much the same extent as Tyrol, are also likely to experience disproportionately high economic losses owing to their significant reliance on tourism and foreign visitors. In Vienna, on the other hand, tourism is far less significant in terms of value creation, with public sector operations being a much greater focus. As a result, the Vienna economy is expected to be the least affected by the coronavirus crisis among all Austrian federal states, although the economists at UniCredit Bank Austria do still expect a serious decline in economic performance in Vienna in 2020.

Significant impact on the labour market in both the short term and the long term
Unemployment increased at record rates in the last two weeks of March, with employment levels declining in Austria for the first time since the crisis. This situation was triggered by the lockdown and by the absence of any clear prospect of an end to the measures during that early period. "Over the coming months, the Austrian labour market will begin to see an even greater impact from the slump in economic performance in the wake of the coronavirus crisis. We expect the rate of unemployment to peak at a level in excess of 13% during the summer and only after this peak do we expect the situation to gradually improve. The average rate of unemployment for 2020 will be almost 11%, which represents a 50% increase on the previous year", says Pudschedl.

Vienna will continue to record the highest rate of unemployment across all federal states in 2020, but the largest increase is expected in Tyrol. The rate of unemployment is expected to more than double in this federal state, which in 2019 recorded the lowest levels of unemployment at 4.5%. Despite recording an increase of more than 50%, Upper Austria is actually set to have the lowest rate of unemployment across all Austrian federal states in 2020.

The short-time work model and the liquidity measures for the companies affected will protect the Austrian labour market from much more serious impact, but the rate of unemployment will still be slow to decline. The average rate of unemployment in Austria as a whole for 2021 is expected to remain significantly above the levels seen before the coronavirus crisis, at around 8%.

The economists at UniCredit Bank Austria have stressed that their forecasts are, of course, considerably less certain than they might be in "normal" circumstances. "Despite the considerable uncertainty, our forecast is based on what is currently the most likely scenario, i.e. a gradual scaling back of the containment measures over the course of H2", says Bruckbauer, adding: "The risk associated with our forecast is that it is extremely difficult in a global context to estimate the exact impact of the coronavirus pandemic and the subsequent measures to combat the virus."


UniCredit Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, Tel.: +43 (0)5 05 05-41957;
Email: walter.pudschedl@unicreditgroup.at