GDP is estimated to contract by 8% in 2020 and projected to pick up only gradually over the coming two years, remaining well below its pre-crisis level by the end of 2022. Unemployment has increased significantly, and is projected to remain elevated. Weak tax revenues and a generous support package have resulted in a large budget deficit. Inflation will remain subdued in the near term.
Swift and decisive action has contributed to safeguard jobs and firms in 2020, but the authorities need to ensure that well-intended short-term policy support does not hamper long-run growth. Stricter conditionality of the short-time work scheme would facilitate the reallocation of labour across sectors. Policy makers should consider introducing tax incentives for the provision and uptake of equity capital to avoid a widespread corporate debt overhang.
The Austrian economy has performed well over the recent decades. Real GDP per capita was the 11th highest in the OECD and 6th highest in the EU in 2018, slightly ahead of Germany, Finland and Belgium. It fell however behind the most rapidly growing OECD countries in the 2010s and the gap has widened more rapidly than in comparable countries. Available indicators of well-being remain nonetheless well above OECD averages, with limited discrepancy between population groups and regions, witnessing a high degree of social cohesion.