|Source: Refinitiv, Raiffeisen Research; * real, ** per hour|
Restriction loosening related rebound in Q2 and Q3 ahead of us
The past winter half-year was not an easy one for the Austrian economy; the economic ice age was frostier here than in the monetary union as a whole. However, given the far-reaching easing steps taken in mid-May, the focus is now on the economic upswing that has already begun. It is precisely the hard economic winter that now gives hope for an even warmer economic summer.
As in the previous year, a seamless transition from an economic slump caused by the lockdown to a loosening-driven upswing will be observed this year. The renewed recession in the winter half-year is thus likely to be followed by a stable economic fair-weather phase in the second and third quarter. We expect real GDP to expand by about 3% qoq in both quarters. The broad-based sectoral improvement in sentiment indicators that has been observed since March at the latest, which has affected not only industrial confidence but also the service sectors particularly affected by shutdown/lockdown measures, gives a foretaste of what lies ahead of us. In contrast to the third quarter of the previous year, however, the economic upswing in the summer should essentially be a tourism upswing (hotels/restaurants). Industry and construction, unlike in spring 2020, did not act as lead weights in the winter half-year, but rather as pillars of the economy (the main reason for the smaller GDP decline as a result of the 2nd/3rd lockdown wave) and have already returned to pre-Corona production levels. Although industry and construction should continue supporting business cycle dynamics in the coming months, there is no backlog as in the aftermath of the first lockdown.
|Weak winter-half year sows the seeds for strong rebound*|
|Source: Statistics Austria, Raiffeisen Research; * sectoral gross value added, real, Q4 19 = 100; hotels/restaurants Q2/Q3 21 assumption|
The upward trend in the hospitality industry is likely to be even more pronounced than in the summer of the previous year. After all, value added in this sector plummeted by 80% in the winter half-year in view of the complete fallout of the winter season and thus by more than during the first shutdown/lockdown a year ago (Q1/Q2 20: -61%), when only part of the winter season and the less relevant May were affected. Even if the hotel and restaurant industry “only” reached the value added level of the Corona summer 2020 in the coming months, this sector would record growth rates of 50-100% qoq in the second and third quarter, which would be equivalent to a notable impulse for overall business cycle dynamics of about 2-4 percentage points each. The chances are good that value added in the coming months will be higher than a year ago; after all, foreign guests are likely to play a stronger role again. While a new wave of infections with corresponding lockdown measures (which we do not expect) in autumn/from autumn onwards would probably also threaten the coming winter season, the side effects of the rapid ramp-up after months of lockdown represent the biggest challenge in the short-term. In May, for example, there were only just under 4 people registered as unemployed for every vacancy in the hotel and restaurant industry. This was lower than at the beginning of 2020, reflecting the short-term surge in staffing needs, but also the reduced labour force in this sector compared to the pre-pandemic period.
|Labour market: Also tourism is facing supply-side bottlenecks*|
|Source: AMS (Public Employment Service Austria), Raiffeisen Research; *unemployed/vacancies ratio tourism: number of people unemployed in the hotels/restaurants sector per vacancy in this sector|
Corona recession interruption, not termination of long-term growth trend
The general view on the foreseeable economic rebound in the second and third quarter has improved given the vaccination progress and the easing measures that have been implemented. As a result, the forecasts released in recent weeks are more optimistic than they were in autumn and winter. This is especially true for the EU Commission, which in its latest (May) round of forecasts has significantly raised its growth expectations for 2021 compared to the extremely cautious February forecast (from 2.0% to 3.4%). A trend that has continued in the new forecasts by Wifo and IHS released on 24 June. Especially Wifo is now more upbeat on 2021 as it raised its GDP call from 2.3% (end-March) to 4.0%. We thus see ourselves confirmed in our projections for real GDP growth in 2021 and 2022, which we have been expressing for some time. We even tend to see our 2021 GDP estimate of 3.5% as the lower limit.
|Economy to reach Pre-Corona level at the beginning of 2022*|
|Source: Refinitiv, Raiffeisen Research; * real GDP (Q4 19 = 100)|
Business cycle dynamics will slow down again after the marked increase in the second and third quarter. In principle, however, the period of favourable business cycle dynamics should turn out to be a longer-lasting phase. We expect above-average GDP growth rates well into 2023, so that the economy first reaches the pre-Corona GDP level (Q4 2019) at the beginning of 2022 and finally the growth path it would have followed without the pandemic at the end of 2023. The Corona recession should thus prove to be an interruption and not a termination in the long-term growth trend. We do not see a structurally lower growth path as a “late sequela” of the pandemic. The external environment, too, does not currently indicate any significant source clouds on the horizon that could grow into a thunderstorm. Unlike in the aftermath of the financial crisis, which merged almost seamlessly into the euro crisis, macroeconomic imbalances do not pose a threat to the economic outlook for the time being.
It is true that supply-side bottlenecks and delays are currently the biggest obstacles to production in the Austrian industrial and construction sector. Never before has the share of companies surveyed that consider material shortages to be the biggest obstacle to production been so high, though Austria is the rule rather than the exception in this respect. Material and supply shortages could thus have a temporary dampening effect on industrial and construction output, as the elimination or at least alleviation of supply-side constraints is likely to be a matter of months rather than weeks. However, the underlying positive trend should remain unaffected, and a temporary slowdown in production should consequently be reflected in an increased production level after the bottlenecks have been resolved.
|Industry: Supply-side bottlenecks on record high*|
|Source: Refinitiv, Raiffeisen Research; * survey (EU Commission) of industrial companies on factors that constitute an obstacle to production (shown: response option "material/equipment"); 0 = long-term average|
Outlook for 2021: Not a normal upswing
The last quarters were characterised by surprisingly robust investment activity, which should also be viewed against the background of favourable industrial dynamics seen of late. Thus, in view of good sales prospects and high capacity utilisation, the brisk investment activity is likely to continue in the coming quarters, even though the pandemic was already preceded by a very strong investment cycle in which production capacities were not only renewed but also expanded. However, this does not change the fundamental observation that the current upswing will not be driven by traditionally very cyclical investments and exports, but by private consumption. Hence, from the second quarter onwards, a renaissance of private consumption is on the agenda, which in 2020 and also in Q1 21 had changed from its traditional role as an anchor of stability into a veritable lead weight for business cycle dynamics. With substantially loosened restrictions, the household savings rate, which rose significantly from 8.2% to 14.5% due to forced savings (precautionary savings played only a minor role), should decline again and prove to be a key driver of business cycle dynamics. After all, households put aside about EUR 15 billion (about 4% of GDP) more last year than would have been the case without the pandemic. Admittedly, the increase in the savings rate was more concentrated in households with above-average incomes and below-average consumption rates. Moreover, part of the additional savings is likely to be of a permanent nature; after all, one third of the savings in 2020 was channelled into the market for investment certificates and shares. The build-up of additional savings that took place in the previous year is therefore likely to develop demand-side impulses only partially and with a time lag. But: Even a normalisation of current consumption (= households again spend a similar amount of current income on consumption) will result in a significant economic impulse. “De-saving” (additional savings from the previous year are consumed) is therefore an upside risk for the economy, but not the prerequisite for the assumed rebound. Either way, we are on the eve of a consumption-driven recovery, with private consumption likely to turn from an economic brake to an economic turbo from Q2 onwards.
|Savings rate (%): Normalisation substantial boost for private consumption|
|Source: Statistics Austria, Raiffeisen Research|
Austria: Underperformer in 2021, outperformer in 2022
All in all, given the assumed “economic resurgence” that will take place in the summer months, we continue to expect GDP growth of 3.5% in 2021 (2020: -6.3 %). This forecast has remained unchanged since April 2020. It is true that Austria is likely to lag behind the euro area in 2021 as a whole (2020: +4.3%). However, this should not obscure the fact that the upswing in the second and third quarter should be more dynamic than in the entire monetary union. The underperformance in 2021 as a whole is thus exclusively a reflection of the stronger GDP decline in the winter half-year (Q4 20/Q1 21) and not of the dynamics over large parts of 2021. While the winter half-year thus represents a burden for the full-year growth in 2021, the more dynamic rebound from Q2 onwards creates ideal starting conditions for an outperformance in the following year 2022 (5.0% vs. 3.7%). Our GDP forecast of 5.0% for 2022 as a whole is higher than most other estimates (consensus: 4.2%), which is due to our somewhat more optimistic view on the easing-induced economic rebound in Q2 and Q3.
"Re-opening inflation" temporary or permanent?
As in the euro area as a whole, consumer prices (HICP) in Austria have risen noticeably since the beginning of the year, from 1.0% in December 2020 to 3.0% in May. The inflation gap to the euro area has thus widened again, which is largely due to the comparatively dynamic price increases in the hotel and restaurant industry. This component alone accounts for 0.6 percentage points of the inflation difference of one percentage point in May, even though the inflation measurement in this sector in May was still fraught with uncertainty. It is true that the significant year-on-year increase in energy prices will again fade somewhat into the background as an inflation driver in the coming months, and the inflation rate is likely to fall below the 3% mark as a result. However, the crucial question will be to what extent (supply-side) bottlenecks and the rapid ramp-up will drive up the inflation rate and to what extent such “re-opening inflation” is temporary in nature. The labour shortages in the hotel and restaurant industry outlined above suggest that service inflation will remain an issue at least in the coming months. All in all, however, as for the euro area as a whole, we expect inflation in Austria to remain elevated for the rest of the year (>2.5% yoy), but most of the price-driving effects should subside again. As a result, consumer prices are likely to increase at a lower rate of 1.9% yoy in 2022 after the stronger increase in the current year (2021: 2.4% yoy, 2020: 1.4% yoy).
|Hotels & restaurants currently main driver of higher inflation in AT vs. EA*|
|Source: Refinitiv, Raiffeisen Research; * inflation rate (% yoy) of HICP sub-component hotels/restaurants|