Economic researchers pleased: crisis averted, forecasts hold

Austria got away with a black eye. The big crisis has not materialized, Wifo boss Gabriel Felbermayr and IHS director Holger Bonin told journalists. Nevertheless, it has become clear how vulnerable Austria is due to its continued high dependence on oil and gas and how urgent it is to expand renewables.

Above average

Specifically, Felbermayr expects economic growth of 0.9 percent this year and 1.1 percent in 2027. “It’s not stormy, but it’s quite acceptable given the many crises,” said the economist. This growth is also 0.2 percentage points higher than in the euro area. Felbermayr: “Austria is no longer bottom of the table in the Eurozone.”

At the IHS, Bonin and his experts expect similar growth: 0.8 percent this year, 1.0 percent next year. The forecasts of the two leading institutes are similar when it comes to inflation, unemployment and the budget.

Felbermayr and Bonin expect a deficit of 4.0 percent this year and 3.7 percent next year and are therefore once again demanding that the federal government finally tackle reforms from health to federalism. Although the double budget was successful without any major background noise, it was not yet a sufficient restructuring of the state finances. The debt ratio continues to rise from 81 to 84 percent, which makes the Republic’s interest service more expensive and takes away room in the budget.

Wifo and IHS cite the planned German pension reform as a model for reform. In Berlin there is talk, among other things, of a higher starting age, restrictions on early retirement and new funded pension elements.

Also in Austria

Felbermayr and Bonin speak of the “first wave of painful but necessary reforms that must come in Germany, but also in Austria.” Bonin hopes that the very ambitious proposal from the German Pension Commission, which the Berlin government intends to implement 1:1, “will also give the Austrian government the courage to push through on key challenges such as federalism reform.”

As far as other location-related issues are concerned, Felbermayr praised the government’s reduction in non-wage labor costs: “After many years, finally a visible signal of relief again.” However, he considers the simultaneous increase in additional wage costs for older people to be “highly problematic”. He also doesn’t like the relatively chaotic implementation of the VAT reduction on basic foodstuffs; it is “disappointing” and in reality “a huge disaster”.

Focus on building

The Wifo boss wants the federal government to now focus on the construction industry, which is already in its 8th year of recession.

The demand for affordable housing is high and more needs to be built. New regulatory hurdles should therefore be rejected, says Felbermayr, referring to the quasi-successor to the controversial strict lending rules (KIM Regulation). What is meant is the “systemic risk buffer” that banks must hold as additional equity for real estate loans.

Felbermayr and Bonin do not agree on one point. The IHS boss considers the reduction in non-wage labor costs to be “not very targeted”. He would have used the large amount of money for the measures, amounting to a net 1.6 billion euros, to provide incentives to switch from part-time to full-time.