08.05.2020

Macroeconomic Effects of the COVID-19 Pandemic in Austria

WIFO-Monatsberichte (monthly reports): Thomas Url about the Opportunities for Stabilisation Policy

The COVID-19 pandemic will have a greater negative effect on Austrian GDP than the financial market crisis of 2007-08. in addition to the sharp decline in foreign trade, large-scale plant closures will reduce value added geared to the domestic market, and the general closure of schools will reduce the supply of labour.

A pandemic directly disrupts the overall economic cycle of goods and services and reduces the associated payment flows between economic sectors. This not only causes a decline in demand and value added, but also pushes companies into a liquidity squeeze.

While automatic stabilisers can quickly counteract this, conventional instruments of stabilisation policy have little chance of success in the current situation. Unconventional fiscal policy instruments and interventions in private-sector contracts are much better at preventing a wave of insolvencies and thus preserving the production capacity for a dynamic upswing following the relaxation of health policy measures.

The article is available free of charge in May 2020.