WIIW The Vienna Institute for International Economic Studies - Wiener Institut für Internationale Wirtschaftsvergleiche

Vasily Astrov, Alexandra Bykova, Rumen Dobrinsky, Selena Duraković, Richard Grieveson, Doris Hanzl-Weiss, Marcus How, Gabor Hunya, Branimir Jovanović, Niko Korpar, Sebastian Leitner, Isilda Mara, Bernhard Moshammer, Beate Muck, Olga Pindyuk, Sandor Richter, Bernd Christoph Ströhm, Maryna Tverdostup, Nina Vujanović, Zuzana Zavarská and Adam Żurawski

wiiw Forecast Report No. Autumn 2022, October 2022
172 pages including 33 Tables and 62 Figures

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Executive summary
by Branimir Jovanović
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1. Global overview: Euro area heading into recession
by Richard Grieveson
Global economic conditions are increasingly gloomy, and the euro area is already facing the risk of stagflation, with a recession now almost certain over the winter. We expect a gradual recovery starting in the first half of 2023, but energy prices will stay high, preventing a rapid bounce-back. The ECB, Fed and other major central banks are hiking aggressively to try to tame inflation, which risks exposing vulnerabilities in the financial sector and places heavy pressure on emerging markets with large dollar borrowing needs. The biggest downside risk is a full cessation of Russian energy supplies to Europe.
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2. Russia’s war in Ukraine: Variables, scenarios and outlook
by Marcus How
We identify four scenarios for the possible outcome of the war in Ukraine through 2023. The baseline scenario is that the war will continue, with hostilities mainly based on attrition, hybrid and asymmetrical warfare, and virtually no scope for a peace agreement. However, the likelihood of the defeat of Russia has increased. An imminent defeat would threaten the stability of its political regime, which would in turn increase the likelihood that Moscow escalates the situation and resorts to nuclear weapons. The defeat of Ukraine at this stage seems unlikely.
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3. CESEE overview: Bracing for the Winter
by Branimir Jovanović
Economic growth in CESEE in the first half of 2022 was better than expected, and our growth forecasts for this year have been mostly revised upwards. However, the worst is yet to come. Inflation is eroding real incomes, consumer confidence is evaporating, business sentiment is deteriorating, interest rates are soaring, and the fiscal space is shrinking. And on top of all that, there is the energy crunch. The CESEE region will probably grow only by 0.3% next year, close to the 0.2% growth that we assume for the euro area.
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4. Austria and CESEE: Growth badly affected by invasion fallout
by Bernhard Moshammer
The sharp reduction in Russian gas flows to Europe has led to inflation in Austria exceeding the levels of the 1970s. This has dented consumption and business confidence. Besides, Germany and the Visegrád countries – Austria’s key trading partners – have been especially badly affected by the fallout from the Russian invasion. Austria’s manufacturing and tourism are bracing themselves for a potentially tough winter.
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5.1 Convergence monitor
by Alexandra Bykova and Beate Muck
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5.2 Business cycle monitor: Dominated by high inflation
by Branimir Jovanović
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