The decline in gross value added in some service sectors and in industry in particular had a dampening effect. Leading indicators would point to continued weak development, especially for goods manufacturing and industry-related sectors.
“The significant weakening of producer price inflation should also dampen consumer price inflation in the coming quarters,” says Wifo economist Christian Glocker. On the supply side, the areas of trade, transport, accommodation and gastronomy as well as the manufacturing sector slowed down price dynamics in the first quarter. On the demand side, it would be falling investments and weak public consumption. Private consumer spending, on the other hand, grew more strongly than expected.
Unemployment recently increased
So far, the economic downturn has only been reflected to a limited extent on the labor market. Although unemployment has risen somewhat recently and the number of vacancies has continued to fall, the rise in employment has continued.
Leading indicators suggested a decline in GDP for the second quarter. Glocker refers to the WIFO economic climate index, which fell in May compared to the previous month. And the UniCredit Bank Austria Purchasing Managers Index even reached its lowest value since April 2020 and points to a decline in industrial production. Consumer confidence also fell again in May. “The expansion of private consumption should therefore not continue,” says Wifo.
Inflation slowed in May
With consumer price inflation (according to the HICP) of 9.5 percent in April, the rise in prices for goods and services for private consumption was significantly stronger than the euro area average. Only four of the 20 euro countries showed higher inflation rates than Austria in April, the Wifo calculated in a broadcast on Friday. Inflation slowed in May, and the decline is likely to continue in the coming months as producer price inflation has already eased, economists expect.
Overall, the euro zone has not yet found its way back to growth despite the easing on the energy markets. The global economy, on the other hand, expanded solidly in the first quarter of 2023, mainly driven by strong GDP growth in China after the end of the zero-COVID policy. The feared recession has not yet materialized in the USA because consumer spending is supporting the economy.
