Austria’s economy will contract this year due to the fallout from the European Central Bank’s interest-rate increases, according to the country’s Wifo research institute.
(Bloomberg) — Austria’s economy will contract this year due to the fallout from the European Central Bank’s interest-rate increases, according to the country’s Wifo research institute.
Gross domestic product will likely contract 0.8% in 2023, before rebounding to 1.2% growth next year, Wifo said in a a report featuring forecasts that form the basis of Austria’s 2024 budget preparations.
High price increases as a result of the pandemic, additional energy price shocks due to the Ukraine war and sharp hikes in key rates will cause a decline in output for most areas of the economy, Wifo said.
“We’re in difficult times, very challenging times economically,” Finance Minister Magnus Brunner told Bloomberg Television. “We’re going into a recession in the third and fourth quarter of this year.”
Brunner, who highlighted that next year’s rebound made him “optimistic,” said that the economic weakness in neighboring Germany was weighing on Austria. More broadly, “all these export-oriented countries like Germany, like Austria, like Sweden, the Netherlands, others, are in difficult times.”
He also said that budget discipline was needed in the European Union, which is currently discussing a revamp of its fiscal rules.
“We need sustainable fiscal rules,” he said. “Get more transparency also and more enforceable rules.”
In June, Wifo had predicted Austria would be able to sustain economic growth both years. Friday’s report also raised estimates for inflation to 7.7% this year and 4% in 2024.
“The Austrian economy is experiencing a mild recession in 2023 due to various exogenous shocks,” Wifo said. “The weakness in economic activity is intended from a monetary policy perspective.”
–With assistance from Jonathan Tirone, Dani Burger and Manus Cranny.
(Adds Austrian finance minister starting in fourth paragraph)
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