Investment in Austria

Austria - Investment

Economy rebounds in Q1 but outlook remains grim

The Austrian economy rebounded from a 1.5% quarter-on-quarter contraction in the fourth quarter of last year to a 2.5% quarterly expansion in the opening quarter of this year. The rebound came despite the Russian invasion of Ukraine and subsequent sanctions placed upon Russia; the Austrian economy is relatively more exposed to Russia than its European peers. On an annual basis, economic growth accelerated to 8.7% in the first quarter from 5.6% in the fourth.

The quarterly recovery was driven by greater capital outlays and a better performance of the external sector. Fixed investment grew 4.2% in the quarter, likely driven by more upbeat business expectations prior to the onset of the war. This followed the fourth quarter’s 0.7% contraction. Household consumption eked out 0.1% growth in the period, swinging from the prior quarter’s 3.6% contraction. The lifting of restrictions for vaccinated and unvaccinated people as well as a tighter labor market were unable to push growth higher; rising consumer prices amid spiraling energy prices likely dented spending. Public consumption, meanwhile, swung from a 2.1% expansion in the fourth quarter to a 1.0% contraction in the first.

Turning to the external sector, exports of goods and services jumped 4.1% quarter on quarter after tumbling 0.9% in the quarter before. More relaxed measures regarding Covid-19 likely buoyed winter tourism, supporting exports in turn. Imports of goods and services, lastly, expanded 5.5% over the prior quarter, contrasting the fourth quarter’s 1.6% contraction.

Turning to the second quarter, the war in Ukraine is likely to weigh on activity. Sanctions placed upon Russia will trickle down to Austria given the country’s significant economic exposure to Russia. Moreover, the country’s industrial sector is highly export-oriented, particularly geared towards Germany. International sanctions, supply chain disruptions, softer demand and higher commodity prices will weigh on goods production. More positively, a tighter labor market and excess savings should offset higher inflation somewhat. Nonetheless, the balance of risks is clearly skewed to the downside.

FocusEconomics panelists project that the economy will expand 2.9% in 2022, which is down 0.3 percentage points from last month’s estimate. For 2023, panelists expect the economy to grow 2.5%.