COVID-19-induced recession requires extraordinary economic policy efforts

  • -7.25% GDP in 2020

  • Unemployment will increase to an average rate of 10.2%

  • Rapid recovery of the economy possible

(Vienna, June 26, 2020) “The stranglehold of the corona pandemic is beginning to loosen in the second half of the year. Recent declines in short-time work and (an albeit weak) reduction in unemployment figures show that the economy is slowly picking up speed again." explains Martin Kocher, Director of the Institute for Advanced Studies (IHS).

Overview of the current figures: Over the whole of 2020, IHS expects economic output to decline by 7.25%. In the Euro Area, this decline is even more pronounced at 8.5%. The current climate of uncertainty is harming private consumption in the short to medium term. The Institute expects a decrease of 4.4% in 2020 compared to the previous year. An increase in the savings rate from 8.3% to 10.9% emphasizes this uncertainty.

The Institute expects a strong catch-up process in 2021. The Austrian economy is expected to grow by 5.75%. Unemployment remains high but falls well below 10%. “We can see that the crisis has bottomed out. The forecast assumes that with the knowledge gained it will be possible to contain new corona outbreaks locally, and therefore there will be no large-scale 'second wave'. The originally hoped-for V-shape of the economy will probably become more of a U-shape during the economic recovery. However, it is important to note that we are already on track.” states Helmut Hofer, Spokesman on Economic Policy at IHS.

Economic policies and reforms

The tense budgetary situation, the historically high level of new debt and the volatile labor market will require both acute and extraordinary economic policy efforts in the coming years. Long-term economic success in Austria presupposes that the aids to strengthen corporate liquidity are gradually converted into measures to stimulate consumption and investment that have a positive effect on the economy. “The goal must be to achieve high growth through innovation. The more forward-looking that the public and private investments are, the more likely it is to achieve a sustainable comeback of the economy", concludes Kocher.

IHS Economic Forecasts