Macro: COVID-19 Economic Update Austria: Economy in free fall

Radical measures to contain corona were implemented in Austria at an early stage. Now Austria is also the first country in the euro area to implement loosening of economic restrictions and to present a concrete "roadmap" towards economic normalisation. Nevertheless, the economic damage caused in the four weeks of the complete "lockdown" is still considerable. It is greater than we expected in mid-March, as the withdrawal of measures is now planned in a longer time frame than originally anticipated. With the exception of March labour market data (see below), there are still no "hard" indicators that give an idea of the extent of the decline in demand or production. However, anecdotal evidence suggests that the largely "prescribed" decline in supply and demand has turned out to be far more severe than initially thought. For example, the Austrian central bank (OeNB) assumes that in the weeks of the complete "lockdown", value added fell by almost 30%, and in some particularly affected sectors such as hotels/restaurants by as much as 80%. The economic stagnation from the second half of March onwards should thus weigh on the first quarter to a greater extent than initially expected and thus completely overshadow the all in all positive underlying trend of the first two months. As a result, the economy is likely to record a decline of 4% qoq already in the first quarter, more than in the most severe three-month period during the financial crisis (Q4 08: -1.9% qoq).

This Research was produced and first published by Raiffeisen Bank International AG which is supervised by the Austrian Financial Market Authority and the National Bank of Austria.