OECD Economic Outlook May 2019, Country Notes: Austria

92 

Austria Output growth is projected to slow to around 1½ per cent in 2019 and 2020. Private consumption remains a key driver of growth, but the slowdown in the euro area is weighing on investment and trade. Inflation is set to remain close to target.

High tax receipts due to robust employment growth will lead to a modest surplus in the government accounts.

Even if the ongoing tax reform will slightly decrease the budget surplus in the short term, some fiscal space is available and could be used to let automatic stabilisers operate if cyclical conditions worsen. More active measures could be considered if developments deteriorate significantly. Structural policy should aim to lift productivity growth by fostering competition in service sectors and to better integrate the most vulnerable groups in Austrian society, in particular the low-skilled elderly, migrants and refugees.

Consumption is the key driver of growth Economic growth is supported by robust domestic demand, in particular from private consumption. Export growth is suffering from weak growth in trading partners, especially in the key export markets, Germany and Italy. In spite of high capacity utilisation in the industrial sector, skills shortages and damped economic activity in the euro area are dragging down business investment.

The outcome of the wage negotiations in autumn of 2018 was above expectations, supporting household consumption growth, together with reductions in charges on unemployment insurance and the “Family Bonus”, a tax allowance for families for children. Unemployment continues to fall. The rather slow decrease, however, reflects some structural unemployment and strong labour force growth due to the inflow of foreign labour and increasing labour force participation.

Austria Strong labour market conditions have supported private consumption

The government debt ratio is edging down

Y-o-y % changes 2.4

% of GDP 4.5

Real private consumption Total employment¹

2.0

Gross government debt² →

3.0

1.6

% of GDP 105

← Fiscal balance

90

1.5

75

0.0

60

0.8

-1.5

45

0.4

-3.0

30

0.0

-4.5

15

1.2 0

-0.4

2014

2016

2018

2020

-6.0

2006

2008

2010

2012

2014

2016

2018

2020

0

1. Projection since 2019Q1.

2. Maastricht definition.

Source: OECD Economic Outlook 105 database.

StatLink 2 https://doi.org/10.1787/888933934033

OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 1: PRELIMINARY VERSION © OECD 2019

 93

Austria: Demand, production and prices

2015

Austria GDP at market prices* Private consumption Government consumption Gross fixed capital formation Final domestic demand Stockbuilding1 Total domestic demand Exports of goods and services Imports of goods and services Net exports1 Memorandum items GDP deflator Harmonised index of consumer prices Harmonised index of core inflation2 Unemployment rate (% of labour force) Household saving ratio, net (% of disposable income) General government financial balance (% of GDP) General government gross debt (% of GDP) General government debt, Maastricht definition (% of GDP) Current account balance (% of GDP)

2016

Current prices EUR billion

344.3 181.2 68.0 78.1 327.3 4.0 331.3 182.8 169.9 13.0 _ _ _ _ _ _ _ _ _

2017

2018

2019

2020

Percentage changes, volume (2010 prices)

2.1 1.5 1.7 4.4 2.2 -0.1 2.2 2.9 3.4 -0.2

2.7 1.6 1.5 3.9 2.1 0.3 2.5 4.9 5.0 0.1

2.7 1.6 0.4 3.4 1.8 0.5 2.2 4.0 2.8 0.7

1.4 1.8 0.9 2.4 1.7 -0.3 1.4 2.3 1.9 0.3

1.6 1.7 0.5 1.7 1.5 0.0 1.5 2.6 2.5 0.1

1.4 1.2 1.0 2.2 1.6 2.1 6.0 5.5 7.8 6.8 -1.5 -0.8 108.4 101.7 82.9 78.1 2.5 1.9

1.6 2.1 1.8 4.8 7.4 0.1 95.9 73.7 2.3

2.0 1.9 1.7 4.6 6.8 0.3 93.8 71.7 2.4

1.9 2.0 1.8 4.6 6.7 0.2 91.9 69.7 2.4

* Based on seasonal and working-day adjusted quarterly data; may differ from official non-working-day adjusted annual data.

1. Contributions to changes in real GDP, actual amount in the first column.

2. Harmonised index of consumer prices excluding food, energy, alcohol and tobacco.

Source: OECD Economic Outlook 105 database.

StatLink 2 https://doi.org/10.1787/888933935116

More efficient government spending and structural reforms are key for stronger long-term growth Robust wage and consumption growth have contributed to healthy fiscal revenues and have more than offset lower receipts from social security contribution cuts and the introduction of the “Family Bonus”.

Though the reform of the personal and corporate tax system will be fiscally neutral in the long-term, the budget surplus is projected to decrease moderately. Fiscal policy should use the leeway public finances provide, particularly if there is a more pronounced downturn than expected.

The long-term sustainability of the public finances could be improved by addressing the efficiency of government disbursements and ensuring that all measures are well targeted. Additionally, misalignments of spending and taxing responsibilities across government layers hamper cost-efficiency. There is scope for structural reforms to boost productivity by simplifying licence systems and further liberalising market entry in services sectors. Moreover, addressing the debt-bias of the corporate tax system and ensuring sufficient provision of private venture and growth capital would help in tackling the general lack of risk capital in the economy, which impedes innovative activity and the scale-up of young firms and start-ups.

OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 1: PRELIMINARY VERSION © OECD 2019

94 

Economic activity is set to be less dynamic Output growth is projected to slow to around 1½ per cent in 2019-20. Household consumption will be a key driver of economic activity, as weak external demand attenuates investment and trade growth. Exports will still grow slightly faster than imports, implying that net trade will contribute positively to output growth over the projection horizon and further increase the current account surplus.

Investment and trade may surprise on the upside in 2020, if global trade growth recovers. Even though healthy increases in the amount of internal funds in recent years have strengthened firms’ equity ratios, continued heavy reliance on bank loans make the Austrian economy vulnerable to potential stress in the European banking sector. Moreover, economic growth in Austria is exposed to a further deterioration of global trade disputes and to a more severe and prolonged slowdown of the German economy.

OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 1: PRELIMINARY VERSION © OECD 2019