Monetary Policy and the Economy Q4/21

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• Monetary Policy and the Economy Q4/21 (PDF, 3.3 MB) January 2022

Studies and Analyses

• Call for applications: Klaus Liebscher Economic Research Scholarship (PDF, 56 kB) en Jan 20, 2022, 12:00:00 AM

• Nontechnical summaries in English and German (PDF, 86 kB) en Jan 20, 2022, 12:00:00 AM

• Exchange rate index update for Austria shows lower effective appreciation than previously measured (PDF, 852 kB) Glauninger, Url, Vondra. This article reports on the most recent update of Austria’s effective exchange rate indices, which serve to aggregate data on bilateral exchange rates and relative prices or costs into indicators of Austria’s short- to medium-term international competitive position. As before, the weighting scheme builds on bilateral trade data for Austria’s 56 most important trading partners and a three-year averaging period, which we were able to move forward to the period 2013– 2015. Having recalculated existing observations from January 2013 onward, we find confirmation for the medium-term worsening of Austria’s competitive position, but in a less pronounced form than suggested by the previous weighting scheme. On the tail end of the curve, the COVID-19 crisis in general and short-time work subsidies in particular have distorted several indicators in 2020 and 2021. With regard to the geographical focus of Austria’s international trade relations, we observe a shift away from the large EU economies towards the USA and China, plus a weaker shift from Northeastern Europe towards Eastern Europe and Turkey. Given the economic relevance of tourism for Austria, we newly created a real effective exchange rate for the tourism industry. In this segment of the economy, we see a more pronounced appreciation than in the service sector as a whole from 2015 onward, which would normally imply a decline in tourism services output. That Austria’s tourism industry clearly continued to thrive indicates that the appreciation coincided with an upward shift of prices and supply toward higher quality segments. en international competitiveness, COVID-19, tourism services C43, F14, F47 Jan 20, 2022, 12:00:00 AM

• Private consumption and savings during the COVID-19 pandemic in Austria (PDF, 442 kB) Schneider, Sellner. The economic disruptions caused by the COVID-19 pandemic have driven up household savings in Austria to unprecedented levels. We quantify the excess household savings accumulated so far during the pandemic (Q1 20 to Q2 21) at EUR 10.8 billion relative to a counterfactual scenario without the pandemic. In this paper, we perform three decompositions of Austrian households’ excess savings. The decomposition by source reveals that a drop in the consumption of services fueled savings despite a strong fall in property income. The decomposition by allocation shows that in 2020 excess savings were mainly used to accumulate currency and deposits. This development reversed in the first half of 2021. The decomposition by saving motives employs econometric models for the savings ratio. It shows that traditional determinants behind saving motives cannot explain the observed sharp increase in savings. We therefore conclude that in the observation period, savings were driven by forced savings. These forced savings come to between EUR 17 billion and EUR 23 billion, depending on the model specification used. Based on our results and a literature survey, we expect that households’ marginal propensity to save out of current income will quickly return to pre-crisis levels but that the scope for satisfying pent-up demand out of accumulated excess savings will remain limited. en COVID-19, excess savings, pent-up demand E21, E32, E37 Jan 20, 2022, 12:00:00 AM

• A new instrument to measure wealth inequality: distributional wealth accounts (PDF, 786 kB) Kennickell, Lindner, Schürz. In this study we investigate the sensitivity of different wealth measurement approaches. In this context, we analyze the alignment of Household Finance and Consumption Survey (HFCS) data with national accounts data and examine the production of distributional wealth accounts, which poses severe conceptual challenges. For a number of reasons, household surveys underestimate top wealth shares. We show that different assumptions generate a wide range of results for different wealth inequality indicators. In particular, the share of the top 1% of households in net wealth ranges from about 25% to about 50%, depending on the underlying assumption. Thus, while the true value of the wealth share held by the top 1% is unknown, all available information indicates that it is closer to 50% than to HFCS results. We call for caution in interpreting top shares as the underlying assumptions are mostly ad hoc choices made by data producers. Our study argues that we need better microdata on the top end of the net wealth distribution. en HFCS, national accounts, distribution, micro-macrodata integration C80, D30, D31, E01, E21 Jan 20, 2022, 12:00:00 AM

• Payment behavior in Austria during the COVID-19 pandemic (PDF, 719 kB) Höpperger, Rusu. The COVID-19 pandemic has significantly impacted consumers’ payment behavior and has influenced how they choose their preferred payment instrument. Using representative data from the Austrian payment diary survey, we examine payment preferences and behavior at the point of sale (POS) between September 2020 and April 2021. In a linear regression framework, we analyze more specifically whether the alleged risk of infection with the coronavirus via banknotes and coins, as perceived by survey respondents, impacted consumers’ use of cash and whether the effect is likely to persist after the end of the pandemic. The survey data indicate that cash remains the preferred means of payment in Austria, accounting for 66% of all POS transactions despite an accelerated downward trend toward cashless alternatives. While recent research results conclude that the actual risk of infection from handling cash is extremely low, our data show that many respondents vastly overestimate this risk. Estimation results suggest that those more concerned about contagion via banknotes and coins tended to perform a smaller share of their transactions with cash and intend to continue doing so in the future. As it is, consumers might have reduced their use of cash somewhat less strongly if they had not overestimated the true, negligible risk of infection. en COVID-19, coronavirus, cash, payment behavior D12, E41, E58, I12, I18 Jan 20, 2022, 12:00:00 AM

• Strong economic rebound amid high uncertainty about impact of Omicron variant. Economic outlook for Austria from 2021 to 2024 (December 2021). (PDF, 1 MB) Fritzer, Prammer, Salish, Schneider, Sellner. In the course of 2021, the Austrian economy recovered more strongly than expected from the sharp contraction recorded in 2020. With the onset of the fourth wave of COVID-19 infections, however, this rebound will slow down again in late 2021 and early 2022. GDP growth for 2021 as a whole will come to 4.9% and will only be affected slightly by the recent slowdown. In early 2022, growth will still be driven by the negative effects of the fourth wave on domestic tourism and by persistent global supply disruptions. Once these effects wear off, we expect the Austrian economy to recover quickly and expand by 4.3% in 2022. In 2023 and 2024, economic growth will decelerate to 2.6% and 1.8%, respectively. This means that in the first half of 2022, Austria’s economic output will reach pre-crisis levels and by the end of the forecast horizon, it will almost be back in line with its pre-crisis trend. The Austrian labor market recovered swiftly from the disruptions caused by the pandemic. In recent months, it actually recorded labor supply shortages. The unemployment rate as defined by Public Employment Service Austria (AMS) went down to 8.2% in 2021 after having risen to 10.1% in 2020. It is expected to decline to 6.0% by 2024. On the back of higher energy prices and global supply disruptions, HICP inflation increased to 2.7% in 2021. In 2022, it will climb further to 3.2%, spurred by energy price developments, the introduction of the CO2 tax as of July 1, 2022, and higher nonenergy commodity prices. With supply-side bottlenecks dissolving and energy prices subsiding, inflation will be down to 2.3% in 2023 and 2.0% in 2024. Thanks to the economic upturn, Austria’s budget deficit improved markedly in 2021, coming to 5.9% of GDP. For 2022, we expect it to decline further to 2.1% as the economy continues to recover and discretionary COVID-19-related measures will be discontinued. The eco-social tax reform will hardly impair Austria’s positive fiscal performance. Austria’s government debt ratio is expected to reach 75.5% in 2024, following a gradual decline from its historic high of 83.2% recorded in 2020. en Jan 20, 2022, 12:00:00 AM