Worse prospects

Wifo: Only weak economic growth until 2028

(Bild: amazing studio - stock.adobe.com)

The Austrian Institute of Economic Research (Wifo) expects only weak economic growth until 2028. Austria's economic output will increase by around one and a quarter percent annually over the five years, the institute announced on Tuesday. The outlook is therefore somewhat worse than expected a year ago.

Until 2022, the economy seemed to be on track to make up for the collapse of the coronavirus crisis in 2020. However, after the renewed recession in 2023, there are no longer any signs of an above-average increase. According to the Wifo forecast, Austria's economy will not make up for the loss in value added caused by the 2023 recession by 2028.

Improvement in unemployment
By contrast, the unemployment rate is expected to fall from 6.8 percent to 5.7 percent by 2028, according to the forecast. However, a massive upheaval must be digested. The baby boomers are retiring, and lower-birth cohorts are following them. Baby boomers have a lower level of education on average. Finding apprentices in particular is likely to become more difficult for companies, as many young people are pursuing higher education. Nevertheless, the labor supply will increase - because more foreign workers will join the workforce, Wifo expects. The proportion of foreign workers in total employment is likely to rise to almost 29% by 2028 - that would be more than twice as high as in 2010 (13.8%).

Real wages to rise this year
Per capita real wages should rise so strongly this year that they will make up for the losses of the two previous years. In the following years, the increase in per capita income will continue to decline, but real wages are likely to grow faster than productivity (+0.4% p.a.) over the entire period 2024-2028. Unit labor costs are therefore also likely to increase every year.

Slight increase in government debt expected
In the next five years, Wifo expects government deficits of just under three percent and a further slight increase in government debt - both in absolute terms and as a proportion of gross domestic product (GDP). In 2028, debt is expected to reach EUR 450 billion or 78 percent of GDP "and thus significantly exceed the requirements of the revised European fiscal framework, which would entail the initiation of an 'excessive deficit procedure'", according to Wifo.

The present forecast is confronted with numerous downside risks.

Studien-Autoren Josef Baumgartner, Serguei Kaniovski und Hans Pitlik

"This forecast is confronted with numerous downside risks," write the authors Josef Baumgartner, Serguei Kaniovski and Hans Pitlik. Their list is long: the Middle East conflict and the war in Ukraine, renewed supply bottlenecks and sharp price increases for energy, grain and raw materials, new, more dangerous Covid variants, but also problems in China's economy that could have a negative impact on the entire global economy - right up to China invading Taiwan.