The Year Of Stagflation?
Austria's economy is set to stagnate in 2024, which is bad news for the country's governing parties heading into a potential September election
Servus!
Austria’s economic indicators aren’t good. GDP fell by 1.7 percent in the fourth quarter of 2023—a third consecutive quarter of negative economic growth. This year, the economy looks set to stagnate: Vienna’s Institute for Advanced Studies is projecting a growth rate of only 0.1 percent; the Austrian Institute of Economic Research says 0.2 percent, which isn’t much better. This, as inflation remains above the Eurozone average: 4.1 percent in March. Did someone say stagflation?
In the markets, the Austrian Traded Index (ATX) took off at the beginning of March, though that rise has now stalled out as both the European Central Bank and the Federal Reserve hold to current interest rates in spite of promises to cut them. Production in the industrial and construction sectors was down 5.1 percent year-on-year in February. And unemployment, having held relatively steady throughout last year’s recession due to the country’s labor shortage, is slowly beginning to tick upward. In March, the unemployment rate was 6.9 percent: up 0.7 percent year-on-year.
There was an excellent piece in the Standard over the weekend that captured Austria’s current economic malaise and the reasons for it. Even though wages have kept pace with inflation thanks to the deals made during last year’s collective bargaining agreement negotiations, Austrian consumers aren’t spending right now because they’re worried about the state of the economy and the prospect of losing their jobs. High costs are holding back the construction industry, including the house-building sector. The same is true of the industrial sector because higher wages, while a boon for workers of course, are making Austrian exports more expensive.
Austria is also suffering because Germany is suffering. The two economies are interconnected; Germany is Austria’s largest import market and export market. German GDP fell 0.3 percent in 2023 and is only projected to grow by 0.2 percent in 2024. The country’s problems are partly of their own making. Its balanced budget amendment, its Schuldenbremse, limits net debt borrowing to 0.35 percent of GDP, boxing the government in, leaving it without much room to kick-start the economy through state investment. Disagreements within the governing three-party coalition don’t help much either.
A sluggish Austrian economy isn’t good for anyone, it goes without saying, especially those who may find themselves out of work. In the political context, it’s bad news for the governing parties, the conservative People’s Party (ÖVP) and the Greens. The far-right Freedom Party (FPÖ) took their lead in opinion polling in November 2022 in the context of Russia’s invasion of Ukraine and the energy and inflationary crises it unloosed. Having navigated those challenges, both the ÖVP and the Greens were hoping for a rosier economic picture in 2024 to revive their fortunes heading into parliamentary elections likely to be held at the end of September.
That recovery, however, hasn’t arrived. Not yet, anyway. It now doesn’t look set to start until 2025, when GDP growth should hit 1.4-1.8 percent, according to Austria’s leading economic institutes. Fixing Austria’s current economic problems, moreover, is not a simple matter, not least because the country is not an island and Germany and Europe’s problems are ours too. The ÖVP and the Greens, then, are going to have to go into September’s prospective election not with evidence of economic success, but rather the promise that better times remain ahead. And that’s going to be a hard sell to an already anxious and disgruntled public.
Bis bald!
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