Austrian economic recovery after shutdown can take three years

The consequences of the lockdown and partial suspension of global trade flows will be felt for a long time.

The coronavirus pandemic poses an enormous challenge for the domestic and global economy. Despite the measures taken by the Austrian government, the consequences of the lockdown and partial suspension of global trade flows will be felt for a long time. 

Research from IIASA, the Vienna University of Economics and Business (WU), the Austrian Institute of Economic Research (WIFO), and the Institute for Advanced Studies (IHS), show that it could take up to three years for the Austrian economy to recover from the shock caused by the restrictions and return to its original, pre-COVID-19 trend.

If the shutdown remains in place until mid-May, the model simulations predict a 4% decline in GDP in 2020, and up to 6% if the shutdown measures remain in place until mid-June. After the shock of 2020, the model shows an economic recovery until 2022, but a lower level of GDP than it would have been without the COVID-19 crisis can still be expected at the end of 2022.

The disruption of activity in several economic sectors in Austria does not only have an adverse effect on the sectors directly affected – it affects the entire economy, particularly by rippling through domestic and global supply chains, as well as by a reduction in final demand due to declining incomes and higher unemployment rates.

The most affected sectors are construction, wholesale and retail trade, transportation, accommodation and food services, as well as arts, entertainment, and recreation. 

Small open economies like Austria that have highly developed manufacturing and service sectors with a complex network of international and domestic economic relations, can therefore expect a noticeable multiplier effect of the COVID-19 pandemic crisis measures.

According to the researchers, the recovery of the economy will begin as soon as the restrictions on economic activity ends, but the transition to the original growth path will take time. Firstly, employees who were previously laid off, will not be reinstated immediately.

Secondly, post-crisis investment will be limited by the financial conditions of companies, and thirdly, the demand for consumption and intermediate goods is likely to remain below pre-crisis levels for some time.

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