Half-Year Report 2021


After successful efforts to combat the coronavirus pandemic, the Austrian economy gained significant momentum in the spring. In the first quarter of 2021, the recovery process was still hindered by the stringent containment measures imposed, which put pressure on private consumption and, in particular, on tourism. According to initial calculations by the Austrian statistical office, Statistik Austria, GDP still contracted by 1.1% in a quarter-on-quarter comparison in the first three months of 2021. The retail, transport, food and beverage, and accommodation sectors were once again dealt a hefty blow as a result of the third lockdown, while positive impetus came from industry and construction. Investment and public consumer demand also increased. While exports declined overall, the subcomponents moved in opposite directions, with goods exports increasing and exports of services declining significantly. A similar picture emerges for imports, again reflecting weak domestic demand in the first three months of 2021. All in all, economic output stood at 91.5% of the pre-crisis level compared to the first quarter of 2019.

The Austrian economy would now appear to be overcoming the coronavirus crisis much faster than previously expected and is embarking on an upswing. The rapid progress made in the vaccination campaign, in particular, is shaping the economic outlook, as the associated lifting of official restrictions allows economic activity to resume. In addition to stronger private consumption, the economic recovery is also being driven by high investment momentum thanks to state investment incentives and increasing capacity bottlenecks, as well as by strong export growth. Exports are reaping the benefits of the global economic recovery. Sentiment among Austrian companies continued to improve in June. The Business Climate Index published by the Austrian Institute of Economic Research (WIFO) stood at 22.6 points (in seasonally adjusted terms), the highest value seen since March 2018. Despite supply bottlenecks, the economic upswing is becoming broader-based. This prompted the Institute for Advanced Studies (IHS) to lift its forecast for economic growth in the current year to 3.4%. Growth of 4.5% is expected for 2022. The Austrian Institute of Economic Research (WIFO) goes even further, predicting that GDP will increase by 4.0% in 2021 (2022: 5.0%). The country’s predicted economic growth for 2021 is, however, lower than the forecast for the euro area as a whole (4.6%), with the Austrian central bank (OeNB) attributing this trend largely to the loss of winter tourism.

The opening of a large number of service sectors from mid-May onwards triggered a marked improvement in the situation on the Austrian labor market. The further easing of the situation will, however, remain a gradual process in light of existing structural challenges, such as high levels of long-term unemployment. According to calculations by the Austrian Public Employment Service (AMS), the number of non-self-employed people was once again slightly higher in a month-on-month comparison in June at 3.86 million, while the unemployment rate (national definition) of 7.0% was down again compared to the previous month, equating to a total drop of 4.4 percentage points since the beginning of the year. The IHS predicts an average unemployment rate of 8.4% in 2021, which should fall to 7.9% in 2022. Despite the improved outlook, however, unemployment will remain above the pre-crisis level even at the end of the forecast period.

After making a moderate start to the year, inflation in Austria has since increased considerably, as was to be expected. The decisive factor was the rise in commodity prices, especially in the price of oil, as a result of the incipient global recovery. There has recently also been a shortage of various input materials due to supply bottlenecks and production capacities that are only gradually being ramped up. Finally, with the economy being opened back up and the corresponding demand for various services, marked price increases have also emerged in this area. According to estimates by Statistik Austria, these already had an impact in the form of increasing the inflation rate according to the Harmonized Index of Consumer Prices (HICP) to 3.0% and 2.8% in May and June, respectively. This means that inflation is currently at a level last seen at the end of 2012. According to the WIFO, the inflation rate (HICP) will increase to an average of 2.3% in 2021 (2020: 1.4%). In addition to strong consumer demand, the key factor in this trend will remain the need to pass on the high prices for raw materials and intermediate goods. Inflation is also expected to remain high at 2.1% in 2022, not least due to above-average capacity utilization in the economy as a whole, which is primarily driving domestic price momentum.

In terms of international risks, both low vaccination take-up among the population and the spread of virus mutations would delay the economic recovery process. Furthermore, a scenario in which support measures are withdrawn too soon could also weigh on economic development. Other risk factors include the sharp rise in commodity prices, delivery delays in the electronics sector, for example, and difficulties affecting international transport. A renewed flare-up of the pandemic poses the greatest downside risk to the Austrian economy, as new containment measures would put considerable pressure on private consumption and tourism.

Negative effects associated with the coronavirus crisis were only felt to a limited extent in the residential sector. According to the OeNB, the trend toward a more pronounced increase in real estate prices that had already emerged in the course of 2020 continued in the first quarter of 2021. The values of the current OeNB residential real estate price index on the basis of new and used condominiums and single-family residences show an increase in Austria in the first quarter of 2021 of 12.3% compared to the previous year. In Vienna, prices increased compared to the previous year by 10.9%. In the rest of Austria (excluding Vienna), price developments came to 14.0% during the same period. In addition to single-family houses, prices were also being driven up by new condominiums. According to the OeNB, the assumption that the more pronounced price increases since the outbreak of the pandemic are related to the lockdown measures and the increased use of working from home seems to have been confirmed. The deviation of the trend for residential real estate prices from the development of the factors included in the OeNB’s fundamental price indicator has accelerated in recent quarters, suggesting that the residential real estate market is increasingly overheating. According to the consumer price index published by Statistik Austria, apartment rents in Austria rose by 3.9% year-on-year in May 2021, with a slight dip compared to the previous month of April.

Experts from the real estate service provider RE/MAX expect a fundamentally positive real estate year in 2021, with real estate supply and demand continuing to increase. As a result, purchase prices for residential real estate are likely to increase overall, albeit at a slower rate than before. Demand for rental apartments is expected to grow at a slower rate than supply in 2021. This means that the new rents agreed for apartments that are not subject to rent restrictions could be somewhat lower than those agreed in previous years. With rising demand and dwindling supply, prices for townhouses and apartment complexes in Austria are likely to rise further in 2021, according to RE/MAX. As far as Vienna is concerned, the real estate service provider EHL expects rent increases in 2021 to be in line with the inflation rate at most, and predicts that apartment purchase prices will increase by between 4% and 5%.

The positive development of Austria’s population looks set to continue. The latest population forecast produced by the Austrian statistical office, Statistik Austria, suggests that by 2040, the Austrian population will have risen by an estimated 6%, from 8.88 million (2019) to 9.45 million. Bank Austria reports that residential construction activity in Austria has been geared toward addressing the marked increase in the demand for homes for some years now. According to the OeNB, however, residential construction activity declined in 2020. The construction industry is also currently facing supply bottlenecks and sharp increases in prices of building materials. According to Bank Austria, an average of 61,000 new homes were built every year in the period from 2013 to 2019 alone, which should have met the ongoing demand for new construction. Nevertheless, the excess demand in some market segments, especially for affordable rental apartments, is likely to have only been partially reduced. The 2020 economic crisis is expected to boost demand in this segment.

According to EHL, the Austrian real estate investment market showed brisk transaction activity in the first and second quarters of 2021, underlining its resilience in the face of the crisis. After already making a good start with a transaction volume of approx. € 680 million in the first three months of the year, a transaction volume of approx. € 1 billion was achieved in the second quarter. Institutional residential projects remain highly sought-after among investors. In terms of the transaction volume, residential properties were the preferred asset class with a share of 37% in the first half of 2021. EHL expects to see an investment volume of around € 4.0 billion on the Austrian real estate investment market in 2021, marking a noticeable increase compared with 2020.