The international economic environment has deteriorated significantly since the beginning of 2022, mainly due to the knock-on effects of the Russia-Ukraine conflict, and the outlook for the global economy and global trade has clouded considerably. The energy price shock and the massive price hike, as well as uncertainty about the availability of gas, are causing dislocations above all in material goods production and exacerbating supply-side shortages due to supply bottlenecks and the aftermath of the COVID 19 pandemic. Consumer confidence and corporate production expectations are falling worldwide, most sharply in the euro zone.
Domestic manufacturing and, in particular, exports proved to be very robust in the first half of 2022 in the face of the negative influences of massive increases in raw material and energy prices, labor shortages, supply bottlenecks and high uncertainty. Austrian merchandise exports expanded strongly in the first half of 2022, with extremely dynamic growth in Q1 2022, which – despite the onset of the Russia-Ukraine crisis in March 2022 – continued only slightly weaker in Q2 2022. The growth of exports of goods reached 19.2% at current prices (nominal) and 14.1% at constant prices (real) by June 2022. The widening gap between the nominal and real trends reflects rising export prices. Austria’s goods export performance was hardly outperformed by any other EU country. Germany, France and Italy recorded significantly lower growth, but goods exports of many smaller European comparator countries, such as Sweden, Finland or the Netherlands, also grew more slowly than in Austria.
Industrial intermediate goods (“processed goods”) have so far made one of the highest contributions to growth in total merchandise exports. This was a consequence of still stable industrial production through increased production in stock with key trading partner countries in order to escape threatened shortfalls in energy supplies and further price increases. The equally high contribution to growth made by Austrian machinery exports was due in particular to strong demand from the USA. The high order backlog in the German capital goods industry also contributed to growth in Austria’s machinery exports. The contribution from energy and raw material exports was mainly price-driven rather than due to an expansion in export volumes. The otherwise important Austrian automotive and automotive supply industry made hardly any contribution to export growth. This is closely related to the crisis in the German automotive industry.
Leading indicators, which remained at a high level until the end of Q2 2022, now also point to a sharp slowdown in export momentum in Austria in the second half of 2022. In the WIFO Business Survey, exporters continue to assess order books from abroad as predominantly positive, but the share of positive reports has declined significantly since June 2022. Export expectations have been significantly scaled back for the first time since the COVID-19 crisis, and negative expectations for export business predominate. As a result, the outlook for new export orders for the remainder of the year is much more subdued. In Q3 2022, export growth should still be fed by the high order backlogs of previous months and diminishing material bottlenecks in domestic production. In the further course of the year, the negative consequences of the Russia-Ukraine crisis are likely to have an increasing impact on Austrian exports of goods. Austria’s strong ties with the CEECs and Germany, which are particularly affected by the current crisis, will contribute to this, as will the expected decline in production in Austria’s manufacturing sector due to high energy prices – especially natural gas prices. This effect is amplified by the loss of international competitiveness, especially in non-European exports – currently, European and Austrian industry faces gas prices about seven times higher than those in the U.S., for example, and competitive advantages for exporters due to the devaluation of the euro hardly outweigh this. However, the direct negative effect of energy prices on manufacturing in Austria is likely to be somewhat weaker than in Germany, especially since the natural gas intensity of Austrian industry is somewhat lower.
The forecast assumes that there will be no official business closures due to the COVID 19 pandemic in Austria or in key trading partners that would affect the export industry until 2023. It is also assumed that the Russia-Ukraine war will continue and that the sanctions against Russia will remain in place. It is not assumed that Russia will completely halt natural gas supplies to Europe, but uncertainties, especially regarding price developments, are assumed to remain and thus the level of natural gas prices will remain high. In this environment, some of Austria’s main trading partners are facing a sharp economic slowdown, which will lead to recession in 2023 in Germany, Italy and CEEC. The revisions in the international economic outlook since the beginning of the year have been enormous, shaping the forecast picture of all major international organizations (European Commission, OECD, IMF, World Bank) and reflecting the increasing distortions of the Russia-Ukraine conflict and the strikingly higher world market prices of energy and raw materials. As a result of the cooling of the global economy in 2023, the problem of bottlenecks in supply chains should subside. The situation is also expected to ease for freight rates in international transport and for the prices of crude oil and industrial raw materials.
Under these changed conditions, Austrian export momentum will decline sharply, especially at the end of 2022, but supported by the extraordinarily good performance in the first half of 2022, will lead to annual growth in goods exports of around 8%, almost matching the previous year’s growth (2021: +9.3%). At 10.0%, import prices will rise much faster than Austrian export prices (+5.9%) in 2022. The high world market prices for raw materials, energy and intermediate goods thus cause a strongly negative terms-of-trade shock, which is further amplified by the depreciation of the euro. As a result, the Austrian trade balance will be burdened this year with a negative price effect of around
€ 8 billion. Positive volume effects due to a smaller increase in import volumes than in export volumes will dampen this negative effect, so that the trade balance is expected to deteriorate by a total of €4.3 billion in 2022 to a deficit of approx.
17 billion in 2022.
Im Jahr 2023 erreicht das österreichische Marktwachstum auf Basis der schwachen internationalen Importprognosen für die
In 2023, Austrian market growth will only reach around 0.4% based on weak international import forecasts for its trading partners. Above all, the gloomy economic outlook for Austria’s most important export markets in the euro area and the increasing deterioration in international competitiveness make it increasingly difficult to maintain market shares, especially in energy-intensive and important parts of the Austrian export industry (chemicals, steel, paper). Exports of goods in 2023 are stagnating, as are imports.
The terms of trade, i.e. the ratio of export to import prices, will continue to deteriorate in 2023, to a much lesser extent than this year, but the negative price effects will nevertheless remain the main reason for the further increase in the trade deficit in 2023 by €2.6 billion to €19.7 billion.
Autorin: Dr. Yvonne Wolfmayr
is Senior Economist in the research area “Industrial Economics, Innovation and International Competition” and has been working at the Austrian Institute of Economic Research (WIFO) since 1992. From 2013 to 2016, she was Deputy Director of WIFO. She studied economics at the University of Vienna and received her PhD from the University of Innsbruck. Stays abroad at renowned universities in the USA (University of California, Los Angeles, and Stanford University) have accompanied her career since then. Her research focuses on the empirical analysis of international trade issues, including foreign direct investment. The preparation of the foreign trade forecast is one of her regular activities at WIFO.