04.05.2020

Medium-term Forecast 2020 to 2024 in the Wake of the COVID-19 Pandemic

WIFO-Monatsberichte (monthly reports): After the Preliminary Report on Economic Outlook for Austria, the Full Version Has Now Been Published

The COVID-19 pandemic caused a temporary shutdown of large parts of the world economy. As a result, the worst recession since the end of World War II is inevitable for the Austrian economy in 2020. Real GDP and employment will decline by at least 5.2 percent and 1.7 percent, respectively, and the unemployment rate will rise to 8.7 percent.

Fiscal measures to cushion the negative effects of the recession and the loss of tax revenues will result in a budget deficit of 7.4 percent and public debt of 80.2 percent of nominal GDP in 2020.

Given that the pandemic remains under control, from the second half of this year the economy should gradually recover, leading to economic growth of 3.5 percent and a fall in the unemployment rate to 7.9 percent next year.

In the medium term, economic growth will converge to trend growth (+1.1 percent p.a.), which is reduced by the COVID-19 pandemic due to lower investment activity and weaker employment growth.

An average annual unemployment rate of 7½ percent is expected for the period 2022 to 2024. The level of public debt in relation to nominal GDP is expected to peak at 80.5 percent in 2021 and is projected to decline to 78.5 percent at the end of the projection period. In a more pessimistic scenario, the global economy is expected to experience a weaker recovery in the second half of 2020.

As a result, the Austrian economy would contract by 7.5 percent, the unemployment rate and the budget deficit would rise to 9.1 percent and 10.0 percent, respectively.

The article is available free of charge in May 2020.