The huge rise in prices and sudden shock in energy costs from the previous year, along with a significant decrease in precautionary stocks, will negatively impact global industrial production and world trade in 2023. Additionally, Austria’s inflation gap with vital trading partners and the euro’s increase in value worsen its competitive pricing position. Nonetheless, Austrian exports of goods experienced a robust 3.9% growth (in real terms)) during the first half of 2023, thereby increasing market share in crucial markets. Export growth will slow down considerably in the latter half of this year. In 2023, goods exports are expected to grow by approximately 1.5% (in real terms) overall. There is a likelihood that exports will increase by 2.5% (in real terms) in 2024. By 2023, the trade deficit in goods for foreign trade will be reduced to half the amount of the previous year, at € -10.3 billion. This improvement is partly due to a decrease in energy prices, which has positively affected the terms of trade. Figure 1 presents a summary of the primary outcomes of the foreign trade forecast.
Global economic output loses momentum and dampens growth in Austrian export markets
Global economic development has recently lost considerable momentum (see Figure 1.1). It is accompanied by a weakness in global industrial production, which is also having an impact on global trade in goods. Germany is particularly affected by this. Austria’s most important trading partner is expected to experience a recession in 2023 (-0.6%), while Germany’s economic output will recover slightly next year (+1.2%). The economy in Europe will also be burdened by high inflation and rising interest rates as a result of restrictive monetary policy. At the same time, demand in China declined significantly following the end of the lockdown in spring 2023. However, global industrial production and trade in goods are also falling, primarily because of the reduction in precautionary stocks that were built up in previous years due to the threat of supply shortages and energy supply shortfalls. However, the shift in the global consumption structure from increased consumption of goods to increased consumption of services – due to the coronavirus – is also having a dampening effect. The growth prospects will only improve again next year with the advanced reduction of increased inventories. In addition, most of the forecasts currently available indicate a further decline in inflation for 2024. The continuing restrictive monetary policy and weak economic development in China are likely to have a negative impact on the global economy in 2024. In the US, the economy has remained stable so far and has been supported primarily by private consumption. However, economic growth is also forecast to weaken in the US in 2024, primarily because the impetus from private consumption is fading.
Inflation differential to other countries and appreciation of the euro worsen the competitive price position
Under these international conditions, the Austrian export markets (the “Austrian market growth”) will shrink by 0.4% this year, mainly due to weak import demand from Germany and the Central and Eastern European countries and are expected to recover by +3.2% in 2024 (Figure 1.3). In addition, Austria’s inflation gap with important trading partners and the appreciation of the euro will lead to a deterioration in its competitive price position in the forecast period (Figure 1.3). In 2023, the price increase measured by the consumer price index is significantly higher than in comparable countries in the eurozone (Figure 2.1). This inflation differential is likely to shrink in 2024 but will continue to persist. In line with this picture, domestic industrial companies once again rate their competitive position as significantly worse compared to competitors in the EU, but especially compared to competitors outside the EU (Figure 2.4). Assessments of the competitive position have reached historic lows, particularly in the intermediate goods and consumer goods sectors, while the decline in the capital goods sector has been delayed and less severe. However, an effect on Austria’s exports and market shares cannot yet be seen in the data for the first half of 2023.
Robust development of goods exports and market share gains in the first half of 2023 despite adverse circumstances
The Austrian export industry proved to be robust in the first half of 2023 despite the negative influences and was even able to gain market share in important markets. It is less affected by the slump in demand for primary products in the wake of destocking and was able to maintain its competitiveness in specific niches. The development of Austrian producer prices abroad also suggests a moderate pass-through of domestic cost increases to Austrian export prices relative to trading partners, presumably at the expense of corporate profits. According to preliminary data from foreign trade statistics, growth in exports of goods reached 6.1% at current prices (nominal) and 3.9% at constant prices (real) in the first half of 2023 (Figure 3). Exports of capital goods (machinery and vehicles) proved to be the most important growth drivers. The (nominal) market share development in the first half of 2023 shows gains of 10.2% compared to the same period of the previous year, mainly thanks to strong exports of machinery to Germany and the USA. Measured in terms of exports in the eurozone, Austria’s market share rose by 3.4%1).
Pessimistic outlook for the second half of 2023, but moderate recovery in the coming year
However, company assessments in the WIFO Business Survey convey a pessimistic outlook for the second half of 2023 (Figures 4.1, 4.2). The assessment of export orders has deteriorated since the May survey. Export expectations were also downgraded significantly in the summer months and barely recovered in the last survey in October. The mood in the capital goods sectors has deteriorated, and thus in the very areas of the export industry that have driven export growth to date. This should slow down export momentum in the second half of 2023 and significantly diminish the export successes from the first half of the year. Growth in goods exports of around 1.5% (in real terms) is expected for 2023 as a whole (Figure 5.1). Given the assumption that the international economy will improve in 2024, a recovery can be expected over the course of the coming year. Exports of goods are likely to increase by 2.5% (in real terms) in 2024. However, the now delayed decline in demand for capital goods will extend into 2024 and leave Austrian export companies specializing in capital goods little room for further market share gains.
Imports of goods reflect the weakness of domestic industrial production and the reduction in precautionary stocks of energy and industrial raw materials that were built up in the previous year. In addition, the slump in the consumption of so-called consumer durables in particular is also noticeable2). This is also partly due to the normalization of the consumption structure following the COVID-19 crisis. Imports are expected to fall by almost 2% (in real terms) in 2023, while imports are likely to recover in 2024 with growth of 2.3% (in real terms) (Figure 5.1). The trade deficit in foreign trade in goods will improve significantly due to the weak import trend and, at € 10.3 billion, will be half of the previous year’s figure in 2023 (Figure 5.2). However, the improvement in the terms of trade, the ratio of export to import prices, is also essential for foreign trade. These had deteriorated drastically in 2022 as a result of commodity and energy taxes – particularly due to the higher proportion of energy in imports – and weighed heavily on Austria’s trade balance. However, the fall in energy prices (especially for natural gas) this year triggered a countermovement. he natural gas and crude oil became more expensive. According to the current forecast, the major price pressure from abroad via commodity prices will continue to ease, and the increase in producer prices for goods sold abroad by Austria and important trading partners in the EU has also continued to weaken. The terms of trade will therefore improve again in 2023 and 2024 (by +1.5% in 2023 and +0.5% in 2024), but less significantly than they deteriorated in 2022 (-5.0%) (Figure 5.3). Key imported commodities such as natural gas and crude oil will also remain more expensive in the medium term.
The forecast is based on the assumption that there will be no further escalation in Russia’s war of aggression against Ukraine, that sufficient natural gas stocks have been built up over the winter and that a complete halt in natural gas supplies from Russia to Europe can still be ruled out. Nonetheless, potential dangers persist, and deficits might lead to more expensive prices and fuel inflation. The recent Middle East conflict between Israel and Hamas also harbours additional uncertainty and geopolitical risk if the conflict spreads and further tensions in the Middle East jeopardise the production and transport of oil. However, if none of this happens, inflation may drop faster than predicted in the forecast, resulting in the possibility of raising the key interest rate, which would give a positive boost to the global economy.
Dr. Yvonne Wolfmayr is Senior Economist at WIFO and has been working in the Research Group “Industrial, Innovation and International Economics” since 1992. From 2013 to 2016 she was Deputy Director of WIFO. She studied Economics at the University of Vienna and the University of Innsbruck with a major in International Economics. Since then, she has spent time abroad at renowned universities in the USA (University of California, Los Angeles, and Stanford University). Her research focusses on the empirical analysis of international trade issues, including foreign direct investment The foreign trade forecast is one of her regular activities at WIFO.
- The development of nominal market shares also reflects price and exchange rate changes. If the market share is calculated in comparison to countries in the same currency area, the exchange rate effect is eliminated in this comparison. ↩︎
- Consumer durables include furniture, sports equipment, bicycles, refrigerators and washing machines, for example ↩︎