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% for the Eurozone as a whole. In 2020, Austria's GDP contracted by almost -7% 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, benefitting from the revival in global trade, it was interrupted by the omicron wave sweeping across the region in the final quarter, with Austria 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. Looking ahead, we expect the recovery to get back on track this year – helped by easing supply-chain pressures and the strong structural underpinnings of private consumption including the solid labor market situation and elevated household savings. The recovery should remain robust over the forecast horizon, with an expansion of +4.5% in 2022 and +2.5% in 2023. Business insolvencies remain considerably below 2020 levels.

The Austrian government’s swift and sizeable policy response to the Covid-19 shock has helped stabilize the economy while keeping a lid on second-round effects, including unemployment and insolvencies. Despite the budget balance topping out at -8% in 2020, government debt peaked at a relatively moderate 84% of GDP - when compared to a Eurozone average of around 100% - up from 70% in 2019. The tax reform of 2022-24, which also includes a tax reduction on corporate income as well as households’ disposable income, shows that the government is trying to lower the public debt burden via higher growth rather than higher revenues. Meanwhile, the current account surplus remains comfortable, reflecting the relative competitiveness and diversification of Austria's export product palette. It is expected to recover further in 2022 on the back of a revival in tourism.

Austria's 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, getting electricity and registering property are ranked at the top among other OECD high-income countries.

The 2019 snap election resulted in 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 will apply from mid-March 2022 onwards.