Citing war in Ukraine, Austrian central bank cuts growth forecast

European Central Bank policymaker Holzmann attends a news conference in Vienna
FILE PHOTO: European Central Bank policymaker and Austrian National Bank (OeNB) Governor Robert Holzmann attends a news conference in Vienna, Austria December 2, 2019. REUTERS/Leonhard Foeger

March 30, 2022

VIENNA (Reuters) – Russia’s invasion of Ukraine has led Austria’s central bank to cut its growth forecast and sharply raise its inflation outlook for this year, it said on Wednesday, adding that the new figures assumed the war would end soon.

The Austrian National Bank (ONB) cut its gross domestic product (GDP) growth forecast to 3.5% from the 4.3% it predicted in its twice-yearly economic outlook issued in December. It raised its inflation forecast to 5.3% from 3.2%.

“Looking ahead, the economy will be heavily driven by this war and its impact, which has been a game-changer,” ONB Governor Robert Holzmann said in an ONB statement.

The central bank also cut its growth forecast for next year, to 2.2% from 2.6%, adding that the new predictions were based on “the assumption of a timely end of warfare”.

“Alternative scenarios – assuming protracted and escalating hostilities and enlarged sanctions and reflecting a reduction of gas supplies from Russia – yield much higher output and inflation effects,” it added.

A slide shown during an ONB news conference outlined two such scenarios. In the worse-case one, inflation rose to 9% this year and growth shrivelled to 0.4%. In the less severe one, growth slowed to 1.9% and inflation accelerated to 7.6%.

In the headline scenario showing 3.5% growth this year, the war’s impact accounted for about half the 0.8 percentage point cut to the growth forecast and roughly a quarter of the 2.1-point increase to the inflation forecast, the ONB said.

(Reporting by Francois Murphy; editing by John Stonestreet)