Monetary Policy and the Economy Q2/21

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• Monetary Policy and the Economy Q2/21 (PDF, 4.1 MB) July 2021

Studies and Analyses

• Call for applications: Klaus Liebscher Economic Research Scholarship (PDF, 75 kB) en Jul 2, 2021, 12:00:00 AM

• Nontechnical summaries in English and in German (PDF, 101 kB) de en Jul 2, 2021, 12:00:00 AM

• Distributed ledger technologies for securities settlement – the case for running T2S on DLT (PDF, 967 kB) Hackel, Haunold, Hermanky, Taudes. With a view to developing the Eurosystem’s TARGET2-Securities (T2S) system further, we propose a system based on distributed ledger technology (DLT) that covers all major T2S settlement functionalities and investigate it with regard to regulatory compliance, performance, cost efficiency and risk. The system we propose is a federated system comprising European central banks and central securities depositories (CSDs) as node operators. The role of the central banks is to maintain the cash accounts; provide regulatory-approved “smart contract factories” defining workflows for securities issuance, lifecycle management and matching, settlement, auto-collateralization and corporate actions; and perform the oversight function. The CSDs maintain securities accounts, offer notary services for issuers, perform corporate actions, and carry out settlement. CSD nodes collect settlement requests from external trading and clearing systems, forward them to other CSDs for cross-border settlement, bundle them into transaction blocks and prepare the blocks for settlement. The ensuing ledger updates occur via a fully automated consensus process between the central banks. In T2S on DLT, specialized smart contracts provide the flexibility to settle a range of digitally represented assets, define novel workflows – and allow for variable settlement times. Rather than having to conform to a uniform settlement time of T+2, participants can choose among smart contracts that settle within seconds or longer periods of time. This feature is expected to reduce capital costs and, given the DLT-based enforcement of settlement discipline, settlement failures. Apart from conforming to the current regulatory requirements, the DLT framework also enables the central banks and authorized actors to conduct status checks at a granular level and in real time. Furthermore, comparisons with similar use cases and benchmarks show that the use of current DLT solutions would allow to meet the current daily performance goals of T2S. Preliminary cost estimates based on available public information indicate that the proposed system could be built and operated efficiently. The federated structure would also support the resilience of operations given the high number of backup nodes. en distributed ledger technology, securities settlement, smart contracts, TARGET2-Securities E44, G21, G23, K22 Jul 2, 2021, 12:00:00 AM

• The share of zombie firms among Austrian nonfinancial companies (PDF, 952 kB) Beer, Ernst, Waschiczek. Aggregate productivity and economic growth may be reduced by “zombie firms” – weakly performing companies that, instead of exiting the market or being restructured, manage to continue operating over an extended period. This article presents first results on the incidence of such zombie firms in Austria, based on three definitions relating to firms’ interest expenses but focusing on different aspects thereof. The main definition measures interest expenses as a ratio of earnings (“interest coverage ratio”). The other two definitions are based on the relationship of interest expenses to liabilities and enhance this information either with firms’ probability of default or their interest coverage ratio. According to all three definitions, the share of zombies fell substantially (even if to different degrees) between 2009 and 2018, across industries and firm sizes. The drop of the zombie share was particularly strong for highly leveraged enterprises. Still, at the end of our observation period, zombie firms continued to have less favorable risk characteristics than non-zombie firms, in particular a distinctly higher probability of default. How this pattern may have changed as a result of the COVID-19 pandemic remains to be seen because our data do not go beyond 2018. Somewhat reassuringly, zombie firms are not more prevalent in those industries that were hit particularly hard by the pandemic. Further findings were obtained with simulations keeping the policy interest rate unchanged over the period under review. Under this assumption, the zombie share established with firms’ interest coverage ratio would have remained roughly constant. The difference between the observed and the simulated zombie shares is particularly pronounced for real estate-related industries, more leveraged firms, and larger companies. Finally, the data show that zombie status is not irreversible. Among those firms for which financial statements information is available for the entire observation period, most zombie firms manage to exit from zombie status. en zombie firms, firm behavior D22, E43 Jul 2, 2021, 12:00:00 AM

• Austria’s labor market during the COVID-19 crisis (PDF, 1.3 MB) Ragacs, Reiss. The impact of the COVID-19 crisis on Austria’s labor market has been huge and a lot heavier than during the Great Recession of 2009 in terms of the increase in unemployment and the drop in employment. Key metrics show that the decrease in employment was broadly in line with the euro area average and that the increase in unemployment went hand with an increase in long-term unemployment and the average duration of unemployment. The generous short-time work scheme rolled out by the government prevented a turn for the worse and also lessened the downward pressure on average wages induced by the strong decrease in average hours worked per employee in 2020. While manufacturing or construction were hit as well, the tourism industry was affected most by the crisis, contributing to a relatively stronger increase in unemployment in provinces with a higher tourism-related share of employment. Younger employees and especially foreigners were also relatively more affected by the increase in unemployment, while employees with tertiary education were relatively less affected. Labor supply, while losing momentum, did continue to grow in 2020, while it had stagnated during the Great Recession. en COVID-19, labor market, recession, public policy J3, J2, E32, H2 Jul 2, 2021, 12:00:00 AM

• Economic recovery aided by coronavirus vaccine rollout. Economic outlook for Austria from 2021 to 2023 (June 2021) (PDF, 1.3 MB) Ragacs, Sellner, Vondra. The easing of containment measures in view of accelerated COVID-19 vaccination rates have put the Austrian economy back on the road to a strong recovery in mid-2021. In 2020, containment measures had caused real GDP to contract by 6.7% year on year. Looking ahead, the Oesterreichische Nationalbank (OeNB) expects annual GDP growth to bounce back to 3.9% in 2021 and 4.2% in 2022, and to return to a normal growth rate of 1.9% in 2023. Amid the catch-up process in 2021 and 2022, industrial production, goods exports and investment are projected to expand in Austria on account of strong global demand. The key drivers of global demand will be the US economy, which is being powered by massive fiscal stimuli, and the robust global industrial production cycle. Exports from Austria are forecast to increase by 7.1% in 2021, by 6.4% in 2022 and by 3.4% in 2023. Gross capital formation is expected to recover sharply in 2021 (+4.7%). Thereafter, investment growth should go down to 3.3% (2022) and 1.8% (2023) as the investment cycle slows down. Private consumption, which slumped by 9.4% in 2020, is projected to recover fast with 4% growth in 2021 and 5.8% in 2022. This means that private consumption will exceed pre-crisis levels already in the first half of 2022, before slowing down in 2023 (+1.8%). Consumption growth will be driven substantially by dissaving, as the saving ratio is forecast to drop from its peak of 14.4% in 2020 to below 8% in 2023. Amid the economic recovery, the unemployment rate is expected to fall to 4.6% in 2023, from 5.2% in 2021. HICP inflation is projected to rise to 2.0% in 2021, driven by rising commodity prices, and to decelerate to 1.8% in both 2022 and 2023. The general government deficit is projected to improve to 6.9% of GDP (following 8.9% in 2020) and to drop to around 2% of GDP by 2023. The debt ratio, which rose from 83.9% to 85.1% of GDP in 2021, is forecast to start shrinking from 2022 and to amount to close to 82% of GDP in 2023. en Jul 2, 2021, 12:00:00 AM