Austria’s economy performed well over the past two decades. The country’s GDP per capita ranks among the highest in the OECD (Figure 1.1). Income inequalities are relatively low (Figure 1.2) thanks to high redistribution through public transfers, which contributes to a relative poverty rate well below many other OECD countries. The domestic production of energy has a low carbon content largely due to significant hydropower resources (Figure 1.3).
The economy is set to recover from a recession in 2023, but it will do so only slowly and remains fragile. Output growth was -0.7% in 2023, and is projected to rise gradually to 0.2% in 2024. The inflation shock in the wake of Russia’s war of aggression against Ukraine is taking time to subside. Public debt has increased substantially, while the public deficit remains close to 3%.
Greater capacity of the economy to adapt to future shocks and address structural challenges is needed. Austria’s business sector is less dynamic compared to other OECD countries, with exceptionally low rates of firm entry and exit. Strict regulations and complex intergovernmental fiscal arrangements dissuade investments, including those needed for the green transformation (Chapter 5). The efficient allocation of resources is also hampered by narrow financing options and low labour mobility. In parallel, social mobility is also low, as educational and labour market outcomes are strongly determined by individuals’ socio-economic and cultural background. Finally, Austria’s greenhouse gas emissions are still significant as domestic energy consumption relies heavily on imported fossil fuels. Administrative and regulatory constraints threaten the fast deployment of renewables, there is intense use of polluting cars, and a high share of emissions is generated by industrial processes.
Bolstering the adaptability of the economy would help cope with long term challenges. The Austrian population is ageing fast with a projected decline in the share of the working-age population from around 76% of the total population in 2020 to 69% in 2060. Digitalisation and technological disruptions, as evidenced by the recent progress in artificial intelligence, are already changing labour market needs significantly. Substantial investment will be required to achieve the country’s net zero emissions target by 2040, and to adapt to the consequences of a changing climate.
The government already launched a package of structural reforms spurred on by Austria’s Recovery and Resilience Plan (RRP) to address these challenges (Box 1.1). Complementary reforms will be needed to sustain high living standards and support the resilience of the economy. In this context, the four key messages of this Economic Survey are:
Sound public finances and low government debt provide fiscal space and strengthen a country’s resilience against short- and long-term shocks. In the short-term, the government should maintain a stable public deficit as long as demand remains weak and uncertainty elevated. When growth picks up, the government should reduce the public deficit to put the public debt on a sustainable path. Pension system reforms and efficiency measures in health care can help to mitigate long-term fiscal pressures. Public revenues need to be more friendly to sustainable and inclusive growth by shifting away from high levies on labour towards less growth-distortive taxes (See Chapter 2).
Reduce barriers to an efficient allocation of resources towards promising activities and firms. The regulation of services, including strict entry requirements into certain professional services, needs to be eased (see Box 1.2 for the potential impact of such reform on growth). Innovation should be further encouraged, including through the expansion of equity financing (see Chapter 3).
Create opportunities for vulnerable social groups (Chapter 4). Particularly, reducing the gap in skills for disadvantaged students and improving the integration of immigrants will be essential to provide equal access to the labour market (see Box 1.2). The government should also continue to support higher labour market participation of women and address the gender pay gap through high quality childcare and well-designed parental leave.
Accelerate the reduction in greenhouse gas emissions. Achieving net zero emissions by 2040 will require a clear and comprehensive strategy including higher and more harmonised carbon prices. Administrative and regulatory constraints, and coordination failures with provinces pose constraints on required investments and need to be tackled. Finally, high exposure to future climate risks, in particular floods, needs to be addressed, and insurance coverage against natural disasters should be expanded (see Chapter 5).
