Including new, tightened measures, there should now be at least an eight percent drop in GDP in 2020.
The partial lockdown in the first half of November already had a noticeable impact on economic development in Austria. Last week, economic activity in the country was around ten percent below the corresponding week of the previous year. Up to and including the last week of October, Wifo was still assuming a seven percent decline in GDP for 2020 as a whole, which could now worsen to around minus eight percent if the measures that came into force on Tuesday are included.
Upper limit
Assuming an 8 percent decline in gross domestic product (GDP), the restrictions that were implemented on 3.11. have come into force (lockdown light), apply until December 6th and then there will be a relaxation until the end of the year, according to a “Research Brief” from the Economic Research Institute (Wifo) on Thursday. But this model forecast does not yet take into account the tightening of the measures that came into force this week (November 17th) and are to apply for the next three weeks.
According to Wifo economist Josef Baumgartner, it is therefore to be expected that these 8 percent represent the upper limit, since the more stringent measures will also slow down economic activity more. How strong the decline will be, however, cannot yet be assessed. “The minus 9.3 percent for 2020 shown in the risk scenario in the medium-term Wifo forecast will not be so, because in this scenario a strict lockdown for ten weeks until 10 January 2021 was assumed,” said Baumgartner.
Similar measures
For the fourth quarter, Wifo is assuming the “lockdown light” version of just under 4.2 percent GDP decline compared to the previous quarter and 8.7 percent minus compared to the same quarter of the previous year. This means that the economic slump as a result of the official closure measures is likely to be “less than in the spring” and account for “at least a third” of the effect in spring. This results primarily from the shorter duration and the shallow depth of the measures adopted. If one takes into account the now even stricter lockdown measures, the GDP decline will be more pronounced in the fourth quarter.
According to Wifo, both domestic demand (private consumption) and foreign demand (especially travel) will be affected by the renewed economic slump in the fourth quarter as a result of the second lockdown, as most of Austria's trading partners have taken similar restrictive measures to contain the Covid-19 pandemic would have. On the GDP generation side, the second lockdown will primarily affect accommodation and gastronomy, but also trade, transport and other services, but hardly any industry and construction.
Slowdown in recovery
In October, the weekly Wifo economic index had deteriorated slightly on the monthly average for the first time since May compared to the previous month. Although the extent of the decline was small, this was “an indication of an increasing weakening of the economic recovery before the second lockdown,” said Baumgartner on Thursday. It is also now evident that the sub-indicators for credit card sales and the labor market as well as mobility data are currently on the decline. The indicators from the manufacturing sector are giving the opposite signals.
In the last two weeks of October seasonally adjusted economic activity – measured by the Wifo Economic Index (WWWI) – was 3.5 and 2.9 percent below the activity of the corresponding weeks of the previous year and deteriorated to 5 3/4 percent at the beginning of November (KW 45) . A first preliminary estimate for last week (calendar week 46) based on the data available as of November 16 shows the above-mentioned decline in economic activity of around 10 percent year-on-year.
Back and forth
After a recovery over the summer to September, unemployment in Austria began to rise again from mid-October. At the end of October it was 11,489 people or 3.3 percent above the value at the end of September, including people in training even by 14,897 or 3.6 percent above.
In the first half of November, unemployment grew even more sharply, namely by 18,069 people or by 5.0 percent compared to the end of October, including those in training by 19,715 or 4.7 percent. The decline in vacancies registered with the Public Employment Service (AMS) was again somewhat lower at the end of October (-15.1 percent, after -18.6 percent in September).
