The sharp increase in gas and electricity prices in Europe, a consequence of Russian gas throttling and the war in Ukraine, is negatively affecting the exports of Austria's manufacturing industry. This is the conclusion of a new FIW Policy Brief written by IHS economists Klaus Weyerstraß, Michael Reiter and Hannes Zenz together with Daniel Schmidtner.
Key Findings:
- Competitive Disadvantage: Energy prices in Europe are likely to remain permanently higher than pre-2021 levels, and significantly higher than in the US and Asia. This also undermines Austria's international competitiveness.
- Affected Sectors: Empirical simulations indicate significant export reductions across most sectors. The highest negative impacts (elasticities) on exports from increased unit energy costs are found in the Motor Vehicles and Pharmaceutical Products sectors, surprisingly not the most traditionally energy-intensive industries.
- Policy Recommendations: Permanent subsidies are not an economically sustainable solution. To lower energy costs for industry, the expansion of renewable energy sources must be accelerated.
- Structural Transformation: Some degree of structural change in the industrial sector will be unavoidable. Economic policy must support this transformation by removing barriers to the creation and scaling of new enterprises.