Investment in Austria

Austria - Investment

Economic activity contracts in the fourth quarter on the back of second lockdown

The Austrian economy shrank 4.3% quarter-on-quarter in the final quarter of last year, swinging from the revised 12.0% expansion logged in the prior quarter (previously reported: +11.1% qoq). The print was driven by the renewed lockdown in the final stretch of the year. On an annual basis, the economic downturn intensified as GDP dropped 7.8% in the fourth quarter, down from the 4.2% fall in the third.

The quarterly downturn came on the back of nosediving household consumption (Q4: -8.3% qoq; Q3: +12.9% qoq), as restrictive measures to curb the spread of the coronavirus weighed heavily on spending. Furthermore, government consumption contracted 0.6% over the prior quarter in Q4, contrasting the 0.5% expansion recorded in Q3. More positively, fixed investment expanded for the second consecutive quarter, albeit meagerly (Q4: +0.1% qoq; Q3: +7.9% qoq).

On the external front, exports of goods and services fell 1.1% in the fourth quarter (Q3: +16.1% qoq) as widespread lockdowns and restrictive measures across Europe dragged on economic activity and holiday travel. Meanwhile, import data further highlighted weakened domestic demand (Q4: -0.7% qoq; Q3: +12.1% qoq).

Looking at 2020 as a whole, the economy contracted 7.4% over the prior year due to the impact of the global health crisis and related restrictions. This marked the first annual drop in output since the global financial crisis. Moreover, the damage inflicted by the coronavirus was much more severe than in the previous downturn. Turning to this year, growth is set to return as the reopening of economies amid the rollout of vaccination programs strengthens domestic and foreign demand. However, a wall of downside risks remains amid lingering uncertainty regarding further waves of infections, the speed and efficiency of the vaccination programs, and the strength of the global recovery. Moreover, the expected expansion this year is partly flattered by a favorable base effect.

FocusEconomics panelists project that the economy will expand 4.7% in 2021, which is down 0.1 percentage points from last month’s estimate. For 2022, panelists expect the economy to grow 3.0%.