Austrian GDP to shrink 8% this year as lockdown persists, central bank says

VIENNA (Reuters) - Austria’s central bank expects economic output to shrink more than twice as much this year as it forecast just a month ago as the coronavirus lockdown lasts longer than anticipated, its Governor Robert Holzmann said in remarks published on Saturday.

FILE PHOTO: Austrian National Bank (OeNB) Governor Robert Holzmann attends a news conference in Vienna, Austria, Dec. 2, 2019. REUTERS/Leonhard Foeger

Holzmann said the central bank now forecasts an 8% drop in Austria’s gross domestic product (GDP). It had previously foreseen a 3.2% drop in a “moderate” pandemic scenario, estimating that each week of lockdown cuts annual GDP by more than $2 billion.

Although Austria’s conservative-led government has said it was one of the fastest countries in Europe in reacting to the coronavirus threat, putting its lockdown in place seven weeks ago and being one of the first to start loosening it on April 14, Holzmann said the central bank still had to increase its estimate of the fallout.

“This (earlier) forecast was based on the then mild scenario of a five-week lockdown and a five-week step-by-step reopening phase. The conditions have changed in the meantime,” Holzmann told the Salzburger Nachrichten newspaper.

“Our current scenario predicts - assuming a 13-week lockdown and a 10-week loosening phase - a fall of eight percent in economic growth,” Holzmann was quoted saying.

“We hope that the truth will be somewhere between these two scenarios and that the lockdown and the loosening phase will go by more quickly,” he added.

If those phases are shorter, the economic impact will be smaller, he said. It was not clear what the central bank considers the start and end of the lockdown - in the past it has appeared to use an earlier start date than when the bulk of the restrictions took effect around March 16.

Illustrating the uncertainty in forecasting the pandemic’s impact, economic think-tank Wifo, which compiles GDP data for the government, said last week GDP would fall 5.2% this year but added it could also fall around 7.5% in a more pessimistic scenario.

Austria’s coalition government of conservatives and Greens has announced an emergency aid package of up to 38 billion euros (33.35 billion pounds) to keep companies and the economy afloat while limiting the increase in unemployment.

It is now putting together an investment package to boost growth that would bring forward existing plans for tax cuts for low and middle incomes as well as spending on as-yet unspecified environmental measures.

“One should accelerate what was already planned,” Holzmann said when asked about the stimulus plan. “That concerns measures relating to climate policy, alternative energy providers, public transport. One should push digitisation much harder.”

Reporting by Francois Murphy; Editing by David Holmes