Perspectives

Corporate sector severely weakened by Covid-19 crisis

st  
Eco Perspectives // 1 quarter 2021  
economic-research.bnpparibas.com  
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AUSTRIA  
CORPORATE SECTOR SEVERELY WEAKENED BY COVID-19 CRISIS  
The government decreed a second lockdown in November due to the rapid rise in Covid-19 infections. Business  
indicators point to a fall in activity. Thanks to the short-time work scheme, unemployment has only risen moderately.  
Moreover, inflation has remained at a relative high level compared to other eurozone countries. In 2021, fiscal policy  
remains very accommodative and the deficit might only shrink to 6.3% of GDP. The economy is projected to rebound  
by 3.5% in 2021 compared with a slump in 2020 (-7.5%). A major downside risk is the increased indebtedness of the  
non-financial corporate sector.  
SECOND LOCKDOWN HALTS RECOVERY  
GROWTH AND INFLATION (%)  
Austria weathered the first wave of the sanitary crisis reasonably  
well, but the second wave in autumn turned out to be much more  
severe. It forced the government to decree a second lockdown in early  
November, resulting in the closing of hotels, bars, restaurants and  
theatres at least until 6 January. After a strong recovery in the third  
quarter (11.1%), the second lockdown has provoked a renewed slump,  
albeit less severe than in the spring. The WIFO business climate index  
fell deeply into the red, as companies assessed the current situation  
as worse, and were quite concerned about the coming few months. In  
particular, economic conditions in the sectors tourism, transport and  
the consumer goods were considered as very unfavourable.  
GDP Growth  
Inflation  
Forecast  
3.5  
Forecast  
3
.0  
3
.5  
.5  
1
.7  
1.7  
1
.4  
1.5  
1.4  
1
-
-
-
0.5  
2.5  
4.5  
Labour market conditions have deteriorated although less than might  
have been expected thanks to the short-time work scheme. The  
unemployment rate peaked at 5.9% in June compared with 4.5% before  
the crisis. In recent months, unemployment has come down, reaching  
-6.5  
-
8.5  
-7.5  
2020  
2019  
2021  
2022  
2019  
2020  
2021  
2022  
5
.4% in October. However, the early warning indicator of the Austrian  
CHART 1  
SOURCE: BNP PARIBAS GLOBAL MARKETS  
employment service points to more layoffs coming in the weeks ahead.  
To provide financial support for the hospitality industry, the VAT rate expected strong recovery. The general government revenue ratio is ex-  
for food and accommodation services was temporarily cut to 5% in pected to decline to 47.1 % of GDP compared with 47.9 % in 2020. The  
July 2020. This rate will probably apply until December 2021. However, deficit could improve to 6.3 % of GDP compared with 9.5% in 2020. The  
in line with government intentions, the lower VAT rate has not been debt-to-GDP ratio is expected to inch up to 84.8 % from 84% in 2020. In  
passed on to consumers. In the first place, it could be considered as 2019, it amounted to 70.5%.  
a kind of compensation for the sector, which faces higher costs and  
lower incomes due to the sanitary regulations to stop the spread of the  
PRIVATE SECTOR IS SEVERELY WEAKENED  
virus. In addition, numerous businesses in this sector are struggling  
with liquidity problems. Mainly because of rising prices in the services The economy is expected to rebound 3.5% in 2021 after the slump in  
sector, inflation has remained relatively high compared to other 2020 (-7.5%). A major downside risk for the economy is the fragility  
eurozone countries. Overall, inflation is forecast at around 1.5% in 2020. of the non-financial corporate sector. Corporate profitability, which  
was already substantially lower than during the Great Recession,  
has further declined. Moreover, in the first half of 2020, the debt-to-  
FISCAL STANCE TO REMAIN ACCOMMODATIVE  
income ratio of the corporate sector increased by 13 bp to almost  
As in 2020, several budgetary rules such as the debt brake and those of 324%. Despite the sharp fall in activity, the number of bankruptcy  
the European Stability and Growth Pact will be suspended in 2021, as proceedings and insolvencies will probably be lower in 2020 compared  
the budget will still be dominated by the effects of the Covid-19 crisis. to last year, because of the legal measures taken during the Covid-19  
Support measures for the most affected sectors - such as the fixed cost crisis. An increase in insolvency proceedings could be expected once  
subsidy, the short-time work scheme or the support fund for non-profit these measures expire.  
organisations - will continue. Investment expenditures, in particular in  
climate protection, public transport and digitalisation are increasing.  
Completed on 7 December 2020  
Moreover, active labour market policies will replace spending on short-  
time work allowances. Nevertheless, government expenditure is set  
to decline by 1.3% from 2020, when spending was boosted by several  
emergency measures. On the revenue side, some relief measures, such  
as the temporary loss carry-back will take the full effect. This rule  
allows companies to offset the losses caused by the Covid-19 pande-  
mic against the profits made in earlier years. Moreover, the marginal  
tax rate of the first income bracket will be lowered. However, this will  
be compensated by the increase in tax revenues associated with the  
The bank  
for a changing  
world  
QUI SOMMES-NOUS ? Trois équipes d'économistes (économies OCDE, économies émergentes et risque pays, économie bancaire) forment la Direction des Etudes Economiques de BNP Paribas.
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