AUSTRIA, with its well-developed market, is closely tied to other EU economies, especially Germany. Having outpaced the euro area’s biggest economy for most of the past 15 years, the Alpine republic is now lagging behind Germany, also its most important export market.
Austria was the second-wealthiest country in the EU in 2012, but had fallen to sixth place by 2014. The economy grew by less than 1pc in 2015. Its economic activity maintained momentum in the first quarter of 2016 and expanded 0.4pc over the previous quarter.
Domestic demand, and private consumption in particular, driven by the tax reform, will continue to provide the necessary support in the forthcoming quarters of 2016, although the forecast risks have increased with the stronger global headwinds.
The following year is also likely to see GDP growth of no more than 1.5pc. There are currently no signs of more dynamic growth in 2017. The positive effect of the tax reform for consumption will weaken in 2017. The FocusEconomics Group panelists see the economy expanding 1.3pc in 2016. For 2017, the panel forecasts broadly-steady growth of 1.5pc.
A survey by the Austrian Institute of Economic Research (WIFO) indicates a stable economic climate. Last year, quarterly growth improved drastically on a year-on-year basis from the second-quarter onwards, supported in particular by the upturn of investment, private consumption and foreign trade. In the fourth-quarter, the contribution from public consumption was particularly strong due to the spending on refugees.
According to the IMF, Austria has weathered the global financial crisis well, and output and employment have recovered to pre-crisis levels. The budget deficit has been well contained in recent years.
Nevertheless, budget support for bank restructuring and resolution has ratcheted up public debt, which stands now at about 86pc of GDP. In 2016, the Fund projects that growth accelerated to 1.4pc from 0.7pc estimated last year.
While the pick-up in growth would support continuing employment expansion, unemployment would still rise to 6.5pc by 2017, elevated by higher migration-related labour supply.
Historically, Austria has always received a sizeable number of immigrants. The unrest in the Middle East, however, has propelled the estimated number of asylum seekers in 2015 to an exceptional 90,000, or about 1pc of Austria’s population.
While the influx of refugees is posing numerous challenges, their successful integration can help reignite potential growth and eventually reduce fiscal imbalances.
Austria’s public finances are strained by burdens from the banking system and one of the lowest retirement ages in the region. The 2015 budget deficit was significantly below official forecasts and amounted to only 1.2pc of GDP thanks to the favourable trend in revenue. Slight rise is expected for 2016.
Public debt increased to over 13bn euros or 86.2pc of GDP in 2015. In 2016, the budget deficit is expected to rise to 1.7pc of GDP in 2016 while public debt as a percentage of GDP will probably fall slightly.
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