Brief analysis 19: Consequences of the development of gas and electricity prices for the Austrian economy
DI Johannes Berger
Head of the Labour Market and Social Security Research Section
Prof. Dr. Monika Köppl-Turyna
Director
Rise in gas and electricity prices linked to sharp slump in growth
The invasion of Ukraine by Russian troops in February 2022 will have far-reaching consequences. In addition to political consequences, it will also have considerable economic and social effects. To date, the EU has adopted seven sanctions packages aimed at weakening the economic situation in Russia. However, there are also repercussions for the European economies.
Prices for natural gas and electricity had already risen considerably by the end of 2021 and continued to rise over the course of 2022. Market participants expect prices for electricity and natural gas to remain very high or even increase further.
In order to estimate the economic impact of the price developments, we have calculated the following level deviations relative to the base scenario without natural gas and electricity price increases in this brief analysis using the Institute's own E-PuMA simulation model:
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Brief analysis 19: Consequences of the development of gas and electricity prices
on the Austrian economy
Real economic output will fall significantly as a result of the energy price increases. Real gross domestic product will be 1.4% or EUR 6 billion lower this year, 4.6% (EUR 20 billion) lower in 2023 and around EUR 16 billion lower in 2024 than in the scenario without energy price increases. Economic growth will therefore be 1.4 percentage points weaker this year and 3.3 percentage points weaker in 2023. If, as expected by the market, energy prices return to a significantly lower level in the following years, the effect on economic output will also subside again. In summary, the current high price expectations for energy can be expected to have a considerable impact on employment, investment and the economy in general. The extent to which effects can also be expected in the longer term depends on how long energy prices remain at a high level. The longer this situation lasts, the more companies will consider relocating economic activities, as production costs in other parts of the world will then become much more favorable. It should also be borne in mind that the study abstracts from regulatory measures and subsidies. If such instruments take effect, the impact is likely to be lower.
The simulation results below therefore show the potential impact of the price shock without economic policy measures.
E-PuMA simulation results of the gas and electricity price scenario for the years 2022 to 2026.
Conclusions
The price trend for energy has already led to extensive support measures on the part of the public sector. The exploding prices for electricity supplies in the future raise the question of how the situation can be brought under control. There are currently several proposals as to what intervention in the electricity market could look like, from price caps for electricity supplies, to subsidies for natural gas when used for electricity production, to a levy on extraordinary profits. It should be noted that each of the proposals is fraught with problems due to the complexity of the market and may have unintended consequences if the reactions of market participants are not carefully considered.
Read the entire conclusion in the brief analysis.
