Upswing from summer

Light at the end of the economic tunnel

Tourism is a pillar of the domestic economy.

(Bild: tinefoto.com | martin steinthaler, Krone KREATIV)

The domestic economy slipped into recession last year with a decline of 0.8 percent. The development varied from state to state. Those with a lot of industry suffered more than those with a focus on tourism. This year, however, Bank Austria's chief economist Stefan Bruckbauer expects an improvement from the summer onwards.

The Austrian economy cooled down considerably in all regions in 2023. While growth in 2022 was still between 3.5 percent (Styria) and 9.5 percent (Salzburg) and an impressive 4.8 percent on average, economic output slipped into recession in the previous year, falling by 0.8 percent.

However, not all federal states were affected to the same extent. Industry-oriented regions such as Upper Austria (-1.2 percent), Lower Austria (-1.5 percent) and Styria (1.6 percent) were significantly more disadvantaged by the difficult economic environment. Countries with a higher share of the public sector or tourism, such as Vienna, Burgenland, Tyrol or Salzburg, fared somewhat better (see chart).

Growth leaders Vienna and Burgenland
The high share of the public sector led to the strongest growth in Vienna and Burgenland in the previous year. "Vienna with a plus of 0.3 percent and Burgenland with a plus of 0.1 percent were the only federal states with growth in positive territory," says Bank Austria economist Robert Schwarz.

Unemployment only slightly higher
Despite poor economic development, unemployment increased only slightly from 6.3 percent in 2022 to 6.4 percent in the previous year. In addition to an increase in employment in the public sector and tourism, many companies have retained their employees due to the shortage of skilled workers. This year, however, the unemployment rate is expected to rise slightly to 6.8 percent, according to Bank Austria Chief Economist Stefan Bruckbauer.

Light at the end of the economic tunnel
However, like Wifo and IHS, Bank Austria now expects an improvement from the summer. "There are positive signals from companies. Many areas are starting to improve," explains Bruckbauer. He expects a slight increase of 0.3 percent for the year as a whole. The domestic economy should stabilize, partly due to the sharp improvement in real incomes coupled with lower inflation and the interest rate cuts expected in the summer.

Construction sector will remain in the red
The experts do not expect the construction industry to recover this year either. In principle, the fact that interest rates will soon fall again is good news. However, long-term financing has recently become cheaper again, which means that no great momentum can be expected now. Overall, the sharp rise in prices (up 40 percent since 2019) is an enormous challenge for the industry, for example for residential construction. Bruckbauer does not expect an upturn in construction until next year.

People are overestimating inflation and underestimating their income development

Stefan Bruckbauer, Chefökonom der Bank Austria

Bild: Gruber Franz /picturedesk.com, Krone KREATIV

There is still a certain reluctance
There is still a certain reluctance, especially among people with higher incomes. The money tends to be saved rather than invested. Bruckbauer: "People overestimate inflation and underestimate their income growth". Experience has shown that it therefore always takes a while for things to settle down again. In any case, consumption needs to "catch up" across Europe so that things start to pick up again. Relying solely on exports abroad is not enough.