The term "Coronacession" is a chimera of corona and recession. The crucial question is how deep and how long the emergency will run.
The economy has largely ground to a halt
The corona pandemic represents a new challenge for all of us. The measures taken by the government to contain the virus are currently putting massive limitations on economic transactions and have caused an enormous loss of jobs so far. On the basis of the definition of the Public Employment Service Austria (AMS), the unemployment rate amounted to 12.2% as of 31 March 2020, after 8.1% at the end of February. This means that more than half a million people have signed on with AMS. The worst-affected sectors are tourism (accommodation, gastronomy), construction, traffic, and warehousing.
| 2018 | 2019 | 2020 expected | |
|---|---|---|---|
| Real GDP in % | 2.7 | 1.6 | -2.6 |
| Inflation rate (CPI) in % | 2.0 | 1.5 | 1.0 |
| Unemployment rate in % (of employed people) | 4.9 | 4.5 | 5.6 |
| Budget deficit in % of GCP | 0.1 | 0.7 | -2.4 |
Source: Erste Group Research, 31 March 2020
The slump in economic growth from March to the end of Q2 2020 has led analysts to expect GDP to decline by 2.6% over the full year. The uncertainty about the actual decline is a sizeable one, which means that the analysts will probably have to cut their 2020 forecasts further.
Fiscal and monetary policy as medicine for the economy
The Austrian federal government has passed a EUR 38bn aid package in order to stimulate the faltering economy. The package includes immediate action, guarantees to secure credit, emergency support for sectors that are particularly hard hit, and tax deferrals. Additional measures such as payment moratoria are being discussed as we speak.
The rating of the Austrian State remains excellent. This is proved by the placement of two new government bonds end of March in the amount of 7.5 bn Euro with zero interest rates. Demand by investors was amounting to 43 bn Euro, which shows that Austria is still seen as a safe haven.
Vienna stock exchange under pressure
The main index of the Vienna stock exchange, the ATX, has lost 38% in the year to date, which means it has significantly underperformed the DAX (-28%) and the S&P 500 (-22%). In a 5Y review, the stock exchange barometer is roughly around the current level of the DAX, albeit net of dividend payments.
The pandemic has hit Austrian companies to different extents. Overall, the composition of the ATX index is unfavourable compared to other indices in the current market phase, given that important sectors such as the tourism and leisure industry, oil and gas, the automotive sector, and financials correct more strongly than defensive shares, of which there are not many at the Vienna stock exchange.
Performance of the ATX index, DAX index, and S&P-500 (- 5Y; as of 2 April 2020)
Please note: performance data prior to charges, fees, or taxes; past performance is not indicative of future development.
Price setbacks provide opportunities
Uncertainty and a blurry picture make it difficult to establish a view on the long-term perspective of equities at the moment. The longer this uncertainty lasts, the longer the equity markets will fail to recover. The right kind of medicine for the stock exchange is the effective fight against the virus and a return to economic normalcy. Pretend you are in the year 2025: try to picture whether, by then, we have overcome the crisis and what life looks like…
If you think that it will be like it used to be a few months ago, you should start buying shares. Maybe step by step, by investing the same amount repeatedly over time. This way, you gather more shares in case prices keep falling and, on the other hand, benefit once we are turning the corner.
For more information, please visit <link blog.en.erste-am.com>blog.en.erste-am.com</link>.
Author:
Paul Severin
Head of Communications Erste Asset Management
Member of the board of OVFA
3 April 2020
 |  |
Note
Wiener Börse AG would explicitly like to point out that the data and calculations given in this report are historic values, which do not permit any conclusions as regards future developments or value stability. Price fluctuations and loss of capital are possible in securities trading. The contribution is the personal opinion of the analyst and does not constitute a financial analysis or a recommendation for investment by the exchange operating company, Wiener Börse AG.