Economic environment

Economic development was shaped above all by the coronavirus pandemic and the associated restrictions in 2021. At the beginning of the year, the sharp increase in the number of Covid-19 cases in the eurozone led to continued restrictions on economic activity. This resulted in negative economic growth of –4.1 per cent in the first quarter of 2021. The national economies were able to take generous opening steps thanks to the development, approval and use of new vaccines against the Covid-19virus. Strong economic growth was recorded in the second quarter (+12.8 per cent) and third quarter (+5.6 per cent) accordingly. The labour market also recovered during the course of the economic recovery. The unemployment rate was still 7.0 per cent at the beginning of 2021. By the end of the year, the labour market recovered to 5.3 per cent, despite the renewed Covid-19 restrictions in the fourth quarter. Restrictions were again imposed by the federal government due to the intensified pandemic situation in the fourth quarter of 2021. The renewed lockdown of public life caused the economy to decline by 2.2 per cent in the fourth quarter.

The complete opening of the economy also led to a rise in inflation. The development of inflation in 2021 was determined by different effects. Sharp rises in energy prices, friction in the global supply chain and the strong recovery in the labour market fuelled inflation from the second half of 2021. Inflation in Austria was measured at 2.7 per cent in 2021 and is in line with the eurozone average (2.6 per cent). The first monetary policy measures were taken by the major central banks in response to the continuing growth in inflation in the fourth quarter. The Bank of England was the first major central bank to raise its key interest rate to 0.25 per cent in the fourth quarter. The ECB decided to end the Pandemic Emergency Purchase Programme (PEPP) in December in response to rising inflation in the eurozone. A first interest rate hike is also possible if inflation remains high. The US Federal Reserve (Fed) also announced its exit from its bond-buying programme. In addition, the prospect of first interest rate steps was also held out in response to rising inflation in the USA.

Risk premiums in the eurozone hardly changed over the year and are close to their pre-crisis level at the end of 2021. This is mainly due to the ECB’s monetary policy measures. In addition, the EU Recovery Fund adopted by the EU has strengthened investor confidence in the creditworthiness of eurozone countries: direct borrowing by the EU, which ensures low-cost financing, is intended to provide grants and loans to the member states.