ifo-N26-Economic Monitor: A Glance on Austria

During the first lockdown in mid-April 2020, aggregate income decreased by about 15% compared to January 2020. Aggregate income remained around 85% over the following summer and returned to pre-pandemic levels in mid-October. Interestingly the second lockdown in November 2020 did not lead to a decline in aggregate income compared to pre-pandemic levels. In contrast income even increased to above pre-pandemic levels at the end of 2020 and during the first quarter of 2021.   In general, the stable, but reduced income level over the summer in 2020 is in accordance with statistics that many employers made use of extended short-time work arrangements.

In March 2020 aggregate spending started to decrease sharply plunging to 60% in mid-April. Aggregate spending started to recover slowly, but persistently, settling around 85% in mid-August and remaining around 80-90% for the rest of 2020 and the first quarter of 2021. Possible explanations for the sluggish recovery during summer 2020 despite most business closures having been lifted are avoidance of perceived health risks and inconvenient protection obligations by consumers as well as lower purchasing power among consumers due to the present income decline. Interestingly the second lockdown in November 2020 only led to a minor and delayed decline in consumer spending compared to the spending levels during summer. Hence current spending levels are still 25 percentage points higher compared to the low point during the first lockdown in spring 2020, but also 15 percentage points below pre-pandemic levels.

Spending on services and cash withdrawals were especially hit during the lockdowns plunging to 30-40% in April 2020 and 50-70% in November 2020 through March 2021. Moreover, we see no immediate, but only a slow and incomplete recovery of service consumption and cash withdrawals after the lockdown in spring 2020, reaching only around 75-80% in August 2020. Consumers are obviously adjusting their behavior and remain concerned way beyond the point where shelter-in-place measures are lifted to reduce their risk of infection. In stark contrast to services, spending on durable goods even increased in times of lockdowns suggesting that there are other reasons than economic uncertainty for consumers to cut back on spending. In previous economic crises, consumers usually reduced their spending on durable goods as they postponed higher expenditures to hedge against economic uncertainty such as job loss or income decline. Apart from the strong Christmas business in 2020, spending on non-durable goods remained fairly stable over the course of 2020. Furthermore, the large increase in consumption of non-durable and durable goods during the Christmas period and the first quarter of 2021 offset the decline in services and cash withdrawals such that on aggregate there was only a minor and delayed spending decline during the second lockdown on the aggregate. Current spending levels are around 70% for services, 60% for cash withdrawals, 120% for non-durable and 130% for durable goods as compared to January 2020. Taken together the results suggest that health risk and lockdowns are the main drivers of the decline in spending on services and cash withdrawals. Measured in terms of consumption of durable goods, economic uncertainty among consumers is low.

On aggregate consumers are accumulating savings over the years, especially during the lockdowns. At the end of 2020 consumers have around 40% more deposits in their accounts compared to the beginning of the year. Subtracting aggregate savings in 2019 from aggregate savings in 2020 we calculate excess savings of 1% in 2020 in relation to aggregate annual income in 2019. As these savings remain in daily accessible accounts consumers have restrained purchasing power. The excess savings trend continues in the first quarter of 2021. Importantly, our measurement of deposits is only a proxy for consumer savings as we do not observe interest bearing savings nor security accounts at other banks. Consequently, our measure of deposits likely underestimates consumer savings and restrained purchasing power.