Austria

Austria boasted a solid growth track record in the decade leading up to the Covid-19 shock, recording average annual GDP growth of +1.5% – slightly above the +1.4% rate for the Eurozone as a whole. In 2020, Austria's GDP contracted by -6.5% despite the initial resilience of its industrial sector as services – notably the important tourism sector – were hit hard by Covid-related business closures and international travel restrictions. While the recovery in 2021 proved relatively swift, benefiting from the revival in global trade, it was interrupted by the Omicron wave, with Austria being one of the first Eurozone countries to tighten containment measures and to raise the issue of compulsory vaccination to get a grip on the pandemic. In 2022, Austria saw an upswing in annual GDP growth of nearly +5% due to easing supply-chain pressures and strong underpinnings of private consumption, including a solid labor market and elevated household savings, despite the elevated energy prices following the war in Ukraine. Looking ahead, we expect weak growth amidst high uncertainty throughout 2023 and 2024. Increasingly tight monetary policy is worsening financial conditions, while stubbornly high inflation is dampening private household consumption and uncertainty weighs on investments. Meanwhile, Austria is also experiencing a dichotomy in its business cycle in 2023: manufacturing and closely related sectors fell into recession but market-related services are expanding overall. Over our forecast horizon, we expect economic growth in Austria to stagnate at +0.4% in 2023, and to pick up by +1.6% in 2024. Business insolvencies are set to increase slightly compared to 2022 but remain around pre-pandemic levels.

The Austrian government’s swift and sizeable policy response to the pandemic shock and the energy crisis has helped stabilize the economy while keeping a lid on second-round effects, including unemployment and insolvencies. But current financial tightening is weighing on economic prospects, leading to an unfavorable development in the labor market. In 2023, unemployment is expected to increase as the weak economic activity coincides with an expansion in the labor force, which will ease again in 2024. Government debt peaked at a relatively moderate 83% of GDP in 2020 – compared to a Eurozone average of around 100% – up from 70% in 2019. It stood at 78% in 2022. With the tax reform of 2022-24, which also includes a tax reduction on corporate income as well as households’ disposable income, the government is trying to lower the public debt burden via higher growth rather than higher revenues. The current account surplus remains comfortable, reflecting the relative competitiveness and diversification of Austria's export products, and is expected to recover further in 2023 on the back of a revival in tourism.

The Austrian business environment proves very strong: The country scores very well in regulatory quality, rule of law and control of corruption. Austria also boasts a well-educated labor force and ranked 27 out of 190 economies in the 2020 World Bank Doing Business survey. In particular, trading across borders, enforcing contracts, resolving insolvencies and getting electricity and registering property are ranked at the top, among other OECD high-income countries.

The 2019 snap election resulted into a coalition between the Austrian People’s Party (ÖVP) and the Greens. However, the government was shaken by chancellor Sebastian Kurz’s resignation after pressure triggered by a corruption scandal. In early December 2021, former ÖVP interior minister Karl Nehammer became the new chancellor of Austria, facing heightened social discontent following the implementation of renewed lockdown measures – at times focused solely on the unvaccinated – as well as the announcement that a vaccine mandate would apply from mid-March 2022 onwards. Austria will face general elections in 2024 that will also determine the chancellor. We expect the political discourse to increasingly shift to the right, with a focus on migration topics. While the government has become more assertive on the migration front, we believe it will be hard for the governing ÖVP to regain votes lost to the right-wing populist Freedom Party.