The Austrian economy is set to recover significantly after the COVID-19 recession. This development will be driven by a strong
international economic expansion (2022) and fiscal policy measures such as the investment premium and the tax reform. Hence,
domestic demand becomes more pronounced over the forecast horizon. In 2022, GDP is expected to rise by 5.0 percent. Influenced
by the presumed cool-down in the international economy, domestic growth is set to ease to 1.8 percent by 2026 (Ø 2022-2026
+2.6 percent p.a.). In comparison to the euro area, annual GDP growth in Austria is on average 0.2 percentage points higher.
Trend output will grow by an average of 1.5 percent p.a. over the forecast period (WIFO method). Due to "forced savings" formed
in 2020-21 as a result of COVID 19 restrictions and the relief provided to private households by the tax reform, private consumption
will grow at an above-average rate of 3.1 percent p.a. (volume terms; 2022 +6.4 percent). In 2022, investment still benefits
from frontloading effects triggered by the investment premium but loses momentum in 2023. From 2024, the investment allowance
and the reductions in the corporate tax rate will stimulate investment. Foreign trade evolves in a particularly dynamic manner
in 2022, which is due to the postponed rebound effect in international travel. The rapid economic expansion results in a strong
decline in unemployment: in 2022, the unemployment rate (7.3 percent) will fall below the pre-crisis level. By the end of
the forecast period, the unemployment rate is expected to drop to 6.1 percent. Strong international demand, supply shortages,
the return of VAT rates to pre-crisis levels in some sectors and CO2 pricing, will push inflation to 3.1 percent in 2022 (Ø
2023-2026 +2.1 percent p.a.). The budget deficit declines from 6.3 percent in 2021 to 2.4 percent in 2022 (2026 +0.4 percent).
The tax reform increases the budget deficit ratio on average by 0.6 percentage points p.a.
JEL-Codes:E32, E37, E66, D31
Keywords:Medium-term forecast, general government, Austria, COVID-19, distribution, tax reform
Research group:Macroeconomics and European Economic Policy – Labour Market, Income and Social Security