Is the Austrian economy positively influenced by German financial contributions?
Austria's economy's not exactly booming, with the state needing a substantial savings plan, private consumption failing to pick up, and a recovery estimation pushed back to at least 2026. The silver lining, perhaps, is the hefty sums of euros that the fresh German federal government is dumping into Germany's run-down infrastructure and Bundeswehr modernization. Germany serves as Austria's undisputed top trading partner. There's a chance that at least a smidgen of the 1.5% plus boost in Germany's GDP might seep over to Austria.
However, WIFO economist Christian Glocker isn't holding his breath. Between 2012 and 2015, Germany's economic success was thanks to construction and consumption, but Austria's economy remained stagnant. Glocker's reasoning is simple: "Austria mainly exports investment goods, but Germany's construction industry boom doesn't benefit Austria much."
Even German experts are dubious about the benefits of this gargantuan package. One theory circles that since there's a massive new demand for construction services, there's a lack of capacity and labor shortages in companies. In other words, prices might shoot up – yep, you guessed it, inflation will see a rise. This revelation came up in discussions at the WIFO in Vienna, alongside general forecasting challenges.
Gabriel Felbermayr, the WIFO's director, has faced criticism in the past for always revising his forecasts downwards, contributing to the budget deficit. Felbermayr pointed to revised statistics, "radical uncertainty" due to global conflicts, or completely unforeseeable events like Corona or a financial crisis.
Take, for example, Austria's sky-high savings rate that's bound to decrease and consumption pick up. When that will happen, though, is anyone's guess, says Felbermayr. Therefore, politics must account for the unexpected in financial planning by building buffers.
According to Glocker's analysis, Austria could reap substantial benefits from Germany's large-scale investments in infrastructure and Bundeswehr modernization. Austrian companies and workers could join supply chains and projects associated with Germany's infrastructure upgrades and defense modernization efforts. This would provide Austria with a much-needed economic boost through increased industrial activity and cross-border cooperation.
The sheer scale of Germany's announced infrastructure package, backed by their modernization plans for the Bundeswehr, points to a considerable industrial and economic stimulus. Austrian companies could capitalize on the close economic ties with Germany to amplify the benefits of these investments, potentially aiding in Austria's economic recovery and development.
In this context, the inflation rate might increase due to the rise in prices caused by labor shortages in Germany's construction sector following their large-scale infrastructure investments. Additionally, the finance ministry could potentially benefit from Austria's active participation in German business ventures, such as infrastructure upgrades and defense modernization projects, resulting in a boost for the Austrian economy.
