## 1autea2024001 ## Source details **Canonical URL:** [1autea2024001](https://www.imf.org/-/media/files/publications/cr/2024/english/1autea2024001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2024/english/1autea2024001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2024/english/1autea2024001.pdf.json) --- ### Macroeconomic context — Recent developments - Growth and output: - Economy contracted by 0.8 percent in 2023. - Output had exceeded its pre-pandemic level by early-2022. - Demand and investment: - Growth weakened from mid-2022 as spillovers from Russia’s invasion of Ukraine contributed to higher energy prices, inflation, and interest rates, weighing on private consumption and investment (especially construction). - Public investment fell back to more normal levels after unusually high spending in 2022 on the strategic gas reserve and rail infrastructure. - Labor markets: - Wage growth exceeded the euro-area average in 2023. - Employment rate hit a record high. - Modest increase in the unemployment rate and some decline in vacancy rates during 2023. - Share of part-time employment increased; total hours worked shifted down, below the pre-COVID trend. - Inflation: - Inflation peaked in January 2023 at nearly 12 percent year-on-year. - Headline inflation was 4.1 percent (y/y) in March (year stated as “this year” in source); core inflation was 4.8 percent. - Contributing factors to a lower peak: less reliance on price controls; 90 percent share of fixed-price electricity contracts for consumers; sticky services inflation (hotels and restaurants). - Fiscal outcomes and public debt: - Overall fiscal deficit estimated to have decreased by 0.5 percentage points of GDP to 2.7 percent of GDP in 2023. - Contraction implied a negative fiscal impulse (change in structural primary balance) of 1.5 percent of GDP. - Debt-to-GDP ratio reduced to below 78 percent in 2023. - Financial sector indicators: - Return on assets: 1.6 percent for 2023Q3 (historical average 0.6 percent). - Subsidiaries in CESEE accounted for 37 percent of Austrian banks’ 2023 profits. - NPL ratio at 2 percent in 2023Q3. - Banks’ net interest margins estimated to be over 2 percent in 2023 Q3 (historical average closer to 1.7). - CET1 capital ratio in 2023Q3: 16.4 percent; CET1 for significant institutions (SIs) 14.9 percent (European SIs average 15.6 percent). - Insurance companies’ median solvency coverage ratio: 266 percent at end-Q3 2023 (up from 200 percent in mid-2020). - Median liquidity-coverage ratio: 164.8 percent; net-stable-funding ratio: 127 percent. ### External position and politics - External position: - Current account: deficit of 0.3 percent of GDP in 2022; returned to a surplus of 2.7 percent of GDP in 2023. - External position in 2023 assessed as broadly in line with medium-term fundamentals and desired policies. - Political context: - Parliamentary elections required by Fall 2024. - Governing coalition since January 2020: People’s Party and the Green Party. - Freedom Party leading the polls; no single party has a majority currently. ### Outlook and risks - Growth projections and drivers: - Modest recovery expected in 2024 led by private consumption as real wages rise to pre-COVID levels. - Investment headwinds from high interest rates and sharp declines in credit growth, particularly mortgage lending. - Output gap projected to widen as growth falls short of potential, then close gradually with stronger investment and expected ECB monetary easing in 2024–25. - Growth projected to fall back to just under 1 percent by 2028–29 as demographic aging weighs on labour force growth. - Potential growth in 2029: 0.9 percent (Cobb-Douglas with capital share 0.4; capital stock growth assumed 1.4 percent; TFP growth assumed 0.2 percent; labor force growth assumed 0.2 percent). - Inflation outlook: - Inflation expected to decline gradually, reaching 2½ percent in the latter half of 2025. - Core inflation expected to decline as lower energy prices pass through and wage growth moderates. - Nominal wage increases: up 7 percent y/y as of 2023Q3 (source wording preserved). - Risks (Annex III summary): - Upside: stronger external demand or faster private consumption recovery. - Downside: intensified Red Sea trade disruptions; further shocks to global commodity markets (particularly gas); abrupt correction in residential and commercial real estate markets disrupting growth and financial stability. - Domestic buffers: high levels of gas storage; dependence on Russian gas remains a vulnerability (share of gas imports from Russia rose above 90 percent in January 2024). - Financial-sector systemic risk broadly unchanged; banking system capital remains well above Basel III minimum in authorities’ stress tests, though impacts are more severe for banks exposed to CESEE. ### Authorities’ views - Broad agreement with staff on outlook and risks: - Agreed 2024 growth likely to be led by private consumption and remain modest. - OeNB and WIFO expected to revise down December 2023 forecasts for 2024; recovery to gain pace on stronger investment, lower euro-area inflation, and falling interest rates. - Authorities’ forecasts: Austrian inflation projected to hit 2.5 percent after 2025 in OeNB forecasts. - Noted risks: pace of recovery depends heavily on global business cycle; potential Russian gas shut-off is a risk but buffered by high storage and alternative imports. - On housing risks: authorities noted consumption demand in Austria is not highly sensitive to house prices. ### Policy discussions — Overall guidance - Fiscal policy: - Near term: support disinflation and rebuild buffers. - Medium term: undertake spending and tax reforms to offset rising spending pressures, fully fund key priorities, and bolster fiscal resilience. - Financial sector: - Remain vigilant to real estate corrections, lagged effects of higher interest rates on NPLs, and likely declines in net interest margins. - Supervisors should encourage banks to retain current high profits to build buffers. - Address CRE data gaps. - Maintain prudent mortgage lending limits; address housing affordability via measures to ease housing supply rather than lending loosening. - Labor supply and structural policies: - Close gender and elderly labour supply gaps. - Accelerate the green transition to meet climate targets and bolster energy security. ### Fiscal policy — Details and recommendations - 2024 budget and outlook: - Draft 2024 budget projects overall deficit to remain at 2.7 percent of GDP (3.2 percentage points above the pre-pandemic level). - Spending expected to rise as a share of GDP due to lagged inflation adjustments in public wages and social benefits, higher defense spending, higher pension costs, and other pressures. - Revenue projected to rise as a share of GDP, with higher real wages boosting social contributions despite reduced revenue from the abolition of bracket creep. - Staff projects 2024 budget to yield a moderate tightening impulse (change in structural primary balance) of 0.4 percent of GDP. - Staff recommendation: - More near-term fiscal adjustment desirable given persistent inflationary pressures, limited slack, and the need to rebuild buffers. - Authorities extended household electricity cost subsidy and reduced energy tax to end-2024 despite falling energy prices; staff recommends seeking opportunities to save any revenue overperformance and avoid new deficit-creating measures during the year. - Fiscal policy should remain agile and adjust if growth and inflation surprise sharply on the downside or upside. - Fiscal numbers (selected, percent of GDP): - Expenditure (2024 draft budget): 52.0 - Revenue (2024 draft budget): 49.3 - Overall balance (2024 draft budget): -2.7 - Structural primary balance (2024 draft budget): -1.5 - Memorandum: Nominal GDP (in b. of euros) (2024 draft budget): 505.3 - Policy support for high energy prices (share of GDP): - Total policy support: 0.9 (2023); 0.4 (2024) ### Spending restraint and structural fiscal measures — summary and quantified potential - Fiscal outlook and recommendation: - Debt is now above 77 percent of GDP. - Structural primary balance is below the level that stabilizes debt in the medium term. - Staff baseline: substantial spending restraint (excluding aging-related costs) bringing key current spending items back near pre-pandemic levels would lead to a fiscal deficit close to 2 percent of GDP over the forecast horizon, and the structural primary deficit would equal -0.8 percent of GDP (roughly the debt-stabilizing level). - Staff recommend aiming for a structural primary balance close to zero by 2028, requiring structural adjustment of about 0.3 percent of GDP per year during 2025–28. - Options to increase fiscal room — estimated net fiscal savings by 2030 (percentage points of GDP): - Reducing energy-intensive subsidies: 0.8 - Achieving efficiencies in healthcare spending: 1.0 - Pension reform: 0.4 - Increase property tax: 0.8 - Inheritance and gift tax: 0.2 - Enhancing government finance: n.c. - Total: 3.2 - Additional policy options: - Cut environmentally harmful subsidies and tax expenditures. - Adopt further pension reforms and improve healthcare spending efficiency, including increasing use of outpatient care. - Update property tax valuations (last comprehensive update of property values based on actual market prices was in 1973). - Evaluate scope for introducing inheritance and gift taxes. - Strengthen subnational fiscal constraints to avoid common-pool problems. - Ensure effective utilization of full allocation from the EU Recovery and Resilience Facility. - Authorities’ views: - Agree on exercising fiscal prudence and rebuilding buffers. - Gradual alignment of women’s retirement age with that of men to 65 years anticipated to reduce pension spending. - Plan to reduce environmentally harmful subsidies to align with the European average (politically challenging). - Regular spending reviews under the EU umbrella are being conducted. - Recent measures to enhance outpatient care and strengthen primary healthcare expected to help lower health spending over the medium term. - Authorities emphasize proactive debt management and issuance of bonds earmarked for green infrastructure projects. ### Financial sector policies — risks and prudential guidance - Key risks and indicators: - NPLs may rise somewhat due to lagged effects from the substantial rise in interest rates over the last two years. - High share of variable-rate mortgages: around 45 percent. - House prices have fallen by about 4 percent (11 percent in real terms) over the year since the peak in 2022Q3 and are assessed to be overvalued by 30 percent by staff estimates in 2022. - Austrian banks’ CRE lending has grown to 20 percent of total bank loans. - Total volume of CRE bank loans: €190 billion, of which exposure toward foreign borrowers is about one–fifth. - Banks’ exposure to CESEE countries poses additional risks amid heightened geopolitical tensions. - Lending rates have responded more quickly to higher policy rates than deposit rates; as deposit rates catch up and depositors shift to higher-yielding term deposits, net interest margins are expected to decline somewhat. - Prudential and supervisory measures: - Banks should use recent strong profits to build buffers and be conservative in capital distributions; invest in cybersecurity and security technology. - Authorities increased bank-specific capital buffer requirements (O-SII and SyRB) in January 2023 by up to 50 basis points, phased in over 2023–24 at 25 basis points each year (to be re-evaluated in 2024). - Countercyclical capital buffer (CCyB) set at zero given the large negative credit-to-GDP gap (-16.4 percent in 2023Q3; ECB estimate). CCyB could be increased in upside scenarios if credit growth rebounds. - Borrower-based measures (mortgage limits): - Mandatory borrower-based measures introduced in mid-2022 remain in place through June 2025 and may be extended for two years with legislative approval. - Measures: loan-to-value (LTV) cap of 90 percent; debt-service-to-income cap of 40 percent; maturity limits set at 35 years; limit of 20 percent on exemptions (introduced August 2022; April 2023 adjustments noted). - Share of new loans with LTVs in excess of 90 percent fell from 59 percent in 2022Q3 to 17 percent in 2023Q2. - Recommendation: maintain these measures as permanent, structural measures; settings are not especially tight internationally given substantial exemptions. - CRE monitoring and data gaps: - Need to produce and publish CRE prices, rental returns, and debt-service-coverage ratios. - Banks should provision CRE loans proactively and apply conservative valuations. - Progress and outstanding FSAP actions: - Progress: mandatory guidance limits on real estate lending; stress testing in 2023 of insurance firms. - Outstanding: adopt legislation to strengthen resolution and bankruptcy regimes and statutory independence of financial-sector supervision and regulation. - Authorities’ stance: - Agree on elevated CRE risks and expected decreases in net interest margins. - Supervisors encouraging banks to strengthen capital bases and provision proactively in CRE. - CRE market indices on prices, rents, and yields may only be available by 2025 due to data quality requirements. - OeNB and FMA stress resisting pressures to weaken borrower-based measures. - View CCyB setting as appropriate given the negative credit gap; adjustments possible based on broader cyclical indicators. ### Structural policies to boost growth and resilience - Labor supply and demographic challenges: - Female workers work substantially fewer hours than the average European country, largely due to higher prevalence of part-time work and insufficient childcare availability (especially outside major cities). - Elderly participation relatively low compared to other European countries, partly reflecting a comparatively generous pension system and greater prevalence of health concerns for ages 55 and older. - Policy impact estimates: - Closing gender and elderly labor supply gaps relative to the EU average would offset more than 20 years of demographic aging in terms of effect on GDP. - Expanding childcare, eliminating the gender wage gap, and mitigating societal norms could boost labor supply by up to 20 percent and increase real GDP by up to 15 percent over time. - Lowering pension replacement rates to the EU average could boost labor supply by 0.5 percent, result in a 0.4 percent expansion of real GDP, and yield a large net revenue increase of 2 pp of GDP. - Recommended measures: expand childcare facilities; combat gender pay gaps via wage transparency; continue migrant integration with language/literacy courses and recognition of credentials. - Housing supply and affordability: - Supply of new housing has fallen short of household formation, especially in Vienna; real house prices rose 74 percent from 2010 to end-2021. - House price-to-rent and house price-to-income ratios increased more than regional peers; staff cites sizable overvaluation. - Contributing factors: strict rent controls, land-use regulations, slow permitting procedures. - Policy options: ease disincentives and regulatory constraints on new construction; increase taxes on vacant land zoned for residential housing. - Green transition and energy security: - Existing mechanisms: EU Emissions Trading System (ETS) and domestic carbon pricing (NEHG) introduced in 2022. - EU ETS 2 scheduled to launch in 2027 and integrate current NEHG. - Austria’s current trajectory for reductions in non-ETS emissions falls significantly short of its 2030 target of a 48 percent reduction compared to 2005. - Bottlenecks: regulatory delays in permitting of green projects; environmental impact assessment law amended in 2023 to streamline the process; further legislative steps underway. - Recommended actions: increase share of renewables; boost green infrastructure, transportation and space heating efficiency; increase public investment in green transition; address skill shortages. - Geo-economic fragmentation (GEF) and competitiveness: - Prepare for GEF-related risks and undertake structural reforms to bolster competitiveness. - Actions: identify products exposed to fragmentation risk; stress-test GVCs; develop coping strategies for disruptions; monitor sanction-related risks in financial sector. - Structural reforms: implement 2023 National Strategic Roadmap for the Digital Decade of Austria; reduce barriers to digitalization (Platform for Infrastructure Development (PIA 2030)); improve rural connectivity. - Fulfill RRF milestones without delay to receive second and third payments. ### AML/CFT issues and transnational corruption (Box 1 summary) - Foreign bribery: - Risks described as moderate, but further efforts called for. - None of the 500 largest multinational enterprises (MNEs) is headquartered in Austria; scale of foreign direct investment not large in a global context. - Since the OECD Phase 3 evaluation, foreign bribery cases involving Austrian companies in Central and Eastern Europe have occurred. - 2015 follow-up acknowledged measures to pursue legal persons for foreign bribery and promote prosecution, but more efforts needed: remove impediments to effective investigations and prosecutions; enhance prevention and detection; increase maximum fines available for companies. - Authorities reported legislative progress: amendment of the Austrian Federal Statute on Responsibility of Entities for Criminal Offences and adoption of the Whistleblower Protection Act in 2023. - Phase 4 evaluation of Austria initiated; on-site visit conducted January 29–February 2, 2024. - AML/CFT mitigating measures and beneficial ownership: - Mitigating measures being strengthened, but professional enablers continue exposed to laundering of foreign proceeds of corruption. - Beneficial ownership of legal entities continues to pose challenges. - Supervisors of lawyers and notaries developed on- and off-site supervisory procedures; need to improve collection of statistics to assess risks. - Amendments to establish umbrella supervisory jurisdiction of the Austrian Chamber of Notaries are being discussed. - Bar Associations highlighted difficulties establishing beneficial ownership of overseas clients. - Austrian Register of Beneficial Owners provides guidance; Beneficial Ownership Registers Interconnection System (BORIS) will provide access across the EU. - Issues remain following European Court of Justice decision to remove public access to the registers; access beyond the EU subject to data protection equivalence standards. ### Staff appraisal — macroeconomic and policy findings (selected) - Macro developments and outlook: - Strong policy responses mitigated recent shocks; growth rebounded strongly from the pandemic but economy contracted in 2023. - Growth expected to recover modestly in 2024; inflation expected to decline gradually to target but sticky services inflation and elevated levels imply it will take time to reach 2 percent. - Notable risks: external demand, energy market developments, inflation persistence, and real estate market corrections. - Fiscal recommendations: - Seek opportunities to overperform the deficit target in 2024 to support disinflation and rebuild buffers. - Phase out remaining energy-price relief measures as early as possible. - Save any revenue overperformance and avoid adopting new deficit-creating measures during the year. - Remain agile: ease (accelerate) adjustment if growth and inflation surprise sharply on the downside (upside). - Financial sector and macroprudential advice: - Financial system remains stable, liquid, and profitable; close monitoring warranted. - Close CRE data gaps by producing and publishing data on CRE prices, rental returns, and debt-service coverage ratios. - Banks should conserve likely temporary high profits to strengthen capital buffers and improve protection against risks, including cybersecurity. - CCyB could be increased above zero once the credit cycle turns into expansionary territory. - Pressures to weaken prudential lending standards for mortgages should be resisted; mandatory limits retained permanently. - Housing affordability efforts should focus on boosting housing supply rather than increasing household leverage. - Implement outstanding 2020 FSAP recommendations: strengthen statutory independence of financial supervision and revise bankruptcy and resolution legislation. - Labor force participation and demographic policy: - Reduce constraints to greater labour-force participation, especially among women and the elderly. - Authorities have taken steps: allocate more resources for childcare; align women’s retirement age with men’s over time. - Further actions: more ambitious childcare targets; close the wage gap; additional pension reforms; deepen immigrant integration. - Green transition and energy security: - Implement national carbon price and expand renewable generation. - Current emission reduction trajectory falls short of commitments. - Ensure resources are deployed to meet green transition investment needs; reduce permitting delays; address skill shortages. - Geoeconomic fragmentation and competitiveness: - Prepare for GEF risks; support solutions preserving benefits of global integration while securing supply chains and accelerating green transition. - Expand digitalization, e.g., implement Austria’s 2030 Broadband Strategy. ### Debt consolidation across sectors — baseline projections and metrics - Public debt (percent of GDP): - Actual 2023: 77.7 - 2024: 77.2 - 2025: 76.5 - 2026: 76.2 - 2027: 76.3 - 2028: 76.4 - 2029: 76.3 - 2030: 76.2 - 2031: 76.1 - 2032: 75.9 - 2033: 75.8 - Change in public debt (percent of GDP): - 2023: -0.7 - 2024: -0.6 - 2025: -0.7 - 2026: -0.3 - 2027: 0.1 - 2028: 0.1 - 2029: 0.0 - 2030: -0.1 - 2031: -0.1 - 2032: -0.2 - 2033: -0.2 - Primary deficit (percent of GDP): - 2023: 2.0 - 2024: 1.9 - 2025: 1.0 - 2026: 0.8 - 2027: 0.9 - 2028: 0.8 - 2029: 0.8 - 2030: 0.8 - 2031: 0.8 - 2032: 0.8 - 2033: 0.8 - Gross financing needs (percent of GDP): - 2023: 10.0 - 2024: 9.8 - 2025: 8.1 - 2026: 8.6 - 2027: 7.5 - 2028: 10.1 - 2029: 9.1 - 2030: 8.5 - 2031: 8.4 - 2032: 9.1 - 2033: 8.4 - Debt structure and characteristics: - Over 46 percent of central government debt has residual maturity >5 years. - Over 90 percent is at fixed interest rates. - Below 20 percent is short-term. - Residual maturity reported: 11.4 years. - Share held by central bank: from zero in 2014 to 20 percent in 2022. - Share of external private creditors: from 54 percent in 2014 to 32 percent in 2022. - Medium-term risk assessment: - Debt Fanchart Module: Risk signal 3/Moderate; Debt fanchart index (DFI): 1.4. - GFN Financeability Module: Risk signal 4/Low; GFN financeability index (GFI): 4.5. - Final assessment: Prob. of missed crisis, 2024-2029, if stress not predicted: 9.1 pct; Prob. of false alarms, 2024-2029, if stress predicted: 56.8 pct. ### Real sector, housing, and labor market indicators (selected table highlights) - Real GDP (expenditure, percent): - 2019 1.5; 2020 -6.6; 2021 4.2; 2022 4.8; 2023 -0.8; 2024 0.3; 2025 1.6; 2026 1.4; 2027 1.0; 2028 0.9; 2029 0.9 - Unemployment rate (EU harmonized, percent): - 2019 4.8; 2020 5.5; 2021 6.2; 2022 4.7; 2023 5.1; 2024 5.4; 2025 5.2; 2026 5.1; 2027 5.1; 2028 5.0; 2029 5.1 - Wages (hourly, percent): - 2019 3.3; 2020 6.0; 2021 0.8; 2022 5.1; 2023 7.3; 2024 8.6; 2025 4.5; 2026 3.4; 2027 2.8; 2028 2.5; 2029 2.6 - Consumer prices (avg, percent): - 2019 1.5; 2020 1.4; 2021 2.8; 2022 8.6; 2023 7.7; 2024 4.0; 2025 2.8; 2026 2.3; 2027 2.0; 2028 2.1; 2029 2.1 - Fiscal aggregates (percent of GDP): - Revenue: 2023 49.4; 2024 49.6; 2025 49.4; 2026 49.2; 2027 49.2; 2028 49.2; 2029 49.2 - Expenditure: 2023 52.1; 2024 52.4; 2025 51.6; 2026 51.3; 2027 51.2; 2028 51.3; 2029 51.3 - Net lending/borrowing: 2023 -2.7; 2024 -2.8; 2025 -2.2; 2026 -2.0; 2027 -2.1; 2028 -2.1; 2029 -2.1 - Gross debt: 2023 77.7; 2024 77.2; 2025 76.5; 2026 76.2; 2027 76.3; 2028 76.4; 2029 76.3 - Housing and credit: - House prices fell by about 4 percent (11 percent in real terms) since 2022Q3 peak. - Share of new loans with LTV >90 percent fell from 59 percent in 2022Q3 to 17 percent in 2023Q2. - Austrian banks’ CRE lending: 20 percent of total bank loans; CRE bank loans volume €190 billion (one–fifth exposure to foreign borrowers). ### Labor market slack and the output gap (Annex I) - Okun coefficient: - Median Okun for advanced economies ~ -0.4; Austria-specific estimate (Ball, Leigh, Loungani (IMF 2013)) = -0.14. - Quarterly sample 2000Q1–2023Q2 Okun-style unemployment-gap coefficient absolute value ~ 0.19. - Hours worked relationship: - Regression results (HP-filtered, detrended): - y = 0.1918x + 0.0007; R² = 0.5366 - y = 0.8705x + 0.0011; R² = 0.7425 - Coefficient in terms of (H* - H) nearly 0.9 with higher R² — hours worked explain more of Austria’s output gap variation than unemployment. - Kurzarbeit and 2023 interpretation: - Kurzarbeit uptake rose to more than 1 million workers by mid-2020. - Labor market indicators for 2023: - Gap in total hours worked in 2023Q3: +1.4 percent - Capacity utilization: 84.1 percent in 2024Q1 (79.1 percent in EU) - Historical average capacity utilization: 85.3 percent (80.8 percent in EU) - Staff estimate: output gap broadly closed in 2023. ### Data adequacy and mission information (Annex VII highlights) - Overall data adequacy assessment: "The data provided to the Fund is adequate for surveillance." - SDDS Plus membership since January 2017; publishes on National Summary Data Page. - Mission: February 16–March 1, 2024; staff team head: Mr. Fletcher. - IMF financial position (exact figures): - Quota: 3,932.00 SDR Million (Percent of Quota 100.00) - Fund holdings of currency: 2,863.78 SDR Million (72.83) - Reserve position: 1,068.24 SDR Million (27.17) - New Arrangements to Borrow: 3.67 (SDR Million) - SDR Department net cumulative allocation: 5,504.96 SDR Million (100.00); Holdings: 5,746.45 SDR Million (104.39) - Exchange rate arrangement: euro; free floating; participation in EMU. *Source — 1autea2024001 - 1. Frameworks for Combatting Transnational Corruption (PDF chapter content provided)* ### 1. Frameworks for Combatting Transnational Corruption ________________________________________ 19 ### 1. Frameworks for Combatting Transnational Corruption ### Macroeconomic context — Recent developments - The economy contracted by 0.8 percent in 2023 following a swift post-pandemic recovery; output had exceeded its pre-pandemic level by early-2022. - Growth weakened from mid-2022 as spillovers from Russia’s invasion of Ukraine contributed to higher energy prices, inflation, and interest rates, weighing on private consumption and investment (especially construction) and causing energy-intensive manufacturing to decline sharply. - Public investment fell back to more normal levels after unusually high spending in 2022 on the strategic gas reserve and rail infrastructure. - Labor markets remained tight despite the contraction: - Wage growth exceeded the euro-area average in 2023. - Employment rate hit a record high. - A modest increase in the unemployment rate and some decline in vacancy rates occurred during the year. - The share of part-time employment has increased; total hours worked have shifted down, below the pre-COVID trend. - Inflation developments: - Inflation peaked in January 2023 at nearly 12 percent year-on-year. - Headline inflation was 4.1 percent (y/y) in March this year; core inflation was 4.8 percent. - Factors slowing Austria’s inflation peak included less reliance on price controls, a high share of fixed-price electricity contracts for consumers (90 percent) that reset at lower frequency, and sticky services inflation (notably hotels and restaurants). - Fiscal outcomes and public debt: - Overall fiscal deficit estimated to have decreased by 0.5 percentage points of GDP to 2.7 percent of GDP in 2023. - Contraction implied a negative fiscal impulse (change in structural primary balance) of 1.5 percent of GDP. - Debt-to-GDP ratio reduced to below 78 percent in 2023. - Financial sector: - Bank profitability reached record highs with a return on assets of 1.6 percent for 2023Q3 (historical average 0.6 percent). - Subsidiaries in CESEE accounted for 37 percent of Austrian banks’ 2023 profits. - NPL ratio at 2 percent in 2023Q3. - Banks’ net interest margins estimated to be over 2 percent in 2023 Q3 (historical average closer to 1.7). - CET1 capital ratio in 2023Q3 stood at 16.4 percent; CET1 for significant institutions (SIs) 14.9 percent (European SIs average 15.6 percent). - Insurance companies’ median solvency coverage ratio reached 266 percent at end-Q3 2023 (up from 200 percent in mid-2020). - Median liquidity-coverage ratio and net-stable-funding ratio are 164.8 percent and 127 percent, respectively. ### External position and politics - External position in 2023 assessed as broadly in line with medium-term fundamentals and desired policies. - Current account: deficit of 0.3 percent of GDP in 2022; returned to a surplus of 2.7 percent of GDP in 2023. - Political context: - Parliamentary elections required by Fall 2024. - Governing coalition since January 2020: People’s Party and the Green Party. - Freedom Party leading the polls; no single party has a majority currently. ### Outlook and risks - Growth outlook: - A modest recovery expected in 2024 led by private consumption as real wages rise to pre-COVID levels. - Investment likely to face headwinds from high interest rates and sharp declines in credit growth, particularly mortgage lending. - Output gap projected to widen as growth falls short of potential, then close gradually with stronger investment and expected ECB monetary easing in 2024–25. - Growth projected to fall back to just under 1 percent by 2028–29 as demographic aging weighs on labor force growth. - Potential growth is calculated to be 0.9 percent in 2029 in a Cobb-Douglas framework with capital share 0.4; capital stock growth assumed 1.4 percent; TFP growth assumed 0.2 percent; labor force growth assumed 0.2 percent. - Inflation outlook: - Inflation expected to decline gradually, reaching 2½ percent in the latter half of 2025. - Core inflation expected to decline as lower energy prices pass through and wage growth moderates. - Recent/projection nominal wage increases: up 7 percent y/y as of 2023Q3. - Risks (Annex III): - Upside: stronger external demand or faster private consumption recovery. - Downside: intensified Red Sea trade disruptions; further shocks to global commodity markets (particularly gas); abrupt correction in residential and commercial real estate markets disrupting growth and financial stability. - Domestic buffers: high levels of gas storage currently; dependence on Russian gas remains a vulnerability (share of gas imports from Russia rose above 90 percent in January 2024). - Financial-sector systemic risk broadly unchanged from last Article IV; banking system capital remains well above Basel III minimum in authorities’ stress tests, though impacts are more severe for banks exposed to CESEE. ### Authorities’ views - Authorities broadly shared staff’s views on outlook and risks: - Agreed growth in 2024 likely to be led by private consumption and remain modest. - OeNB and WIFO expected to revise down December 2023 forecasts for 2024; recovery to gain pace on stronger investment, lower euro-area inflation, and falling interest rates. - Authorities’ forecasts: Austrian inflation projected to hit 2.5 percent after 2025 in OeNB forecasts. - Noted risks: pace of recovery depends heavily on global business cycle; potential Russian gas shut-off is a risk but buffered by high storage and alternative imports. - On housing risks: authorities noted consumption demand in Austria is not highly sensitive to house prices. ### Policy discussions — Overall guidance - Fiscal policy: - Should support disinflation and rebuild buffers in the near term. - Undertake spending and tax reforms over the medium term to offset rising spending pressures, fully fund key priorities, and bolster fiscal resilience. - Financial sector: - Authorities should remain vigilant to real estate corrections, lagged effects of higher interest rates on NPLs, and likely declines in net interest margins. - Supervisors should encourage banks to retain current high profits to build buffers. - Address CRE data gaps. - Maintain prudent mortgage lending limits; address housing affordability via measures to ease housing supply rather than lending loosening. - Labor supply and structural policies: - To offset aging headwinds, take further efforts to close gender and elderly labor supply gaps. - Accelerate the green transition to meet climate targets and bolster energy security. ### Fiscal policy — Details and recommendations - 2024 budget and outlook: - Draft 2024 budget projects the overall deficit to remain at 2.7 percent of GDP (3.2 percentage points above the pre-pandemic level). - Spending expected to rise as a share of GDP due to lagged inflation adjustments in public wages and social benefits, higher defense spending, higher pension costs, and other spending pressures. - Revenue projected to rise as a share of GDP, with higher real wages boosting social contributions despite reduced revenue from the abolition of bracket creep. - Staff projects the 2024 budget to yield a moderate tightening impulse (change in structural primary balance) of 0.4 percent of GDP. - Staff recommendation: - More near-term fiscal adjustment would ideally be desirable given persistent inflationary pressures, limited slack, and the need to rebuild buffers. - Authorities extended household electricity cost subsidy and reduced energy tax to end-2024 despite falling energy prices; staff recommends seeking opportunities to save any revenue overperformance and avoid new deficit-creating measures during the year. - Fiscal policy should remain agile and adjust if growth and inflation surprise sharply on the downside or upside. - Fiscal numbers (Text Table 2, selected items; percent of GDP): - Expenditure (2024 draft budget): 52.0 - Revenue (2024 draft budget): 49.3 - Overall balance (2024 draft budget): -2.7 - Structural primary balance (2024 draft budget): -1.5 - Memorandum: Nominal GDP (in b. of euros) (2024 draft budget): 505.3 - Policy support for high energy prices (Text Table 3: Share of GDP): - Total policy support: 0.9 (2023); 0.4 (2024) _Italic: Source — 1autea2024001 - 1. Frameworks for Combatting Transnational Corruption (PDF chapter content provided)_. ### 14. Spending restraint and structural fiscal measures are needed to rebuild buffers and ### 14. Spending restraint and structural fiscal measures are needed to rebuild buffers and ### Fiscal outlook and recommendation - Debt and buffers - Debt is now above 77 percent of GDP. - The structural primary balance is below the level that stabilizes debt in the medium term. - Staff baseline and recommendation - Staff’s baseline: substantial spending restraint in other areas (excluding aging-related costs) bringing key current spending items back near pre-pandemic levels as a percent of GDP would lead to a fiscal deficit close to 2 percent of GDP over the forecast horizon, and the structural primary deficit would equal -0.8 percent of GDP (roughly the debt-stabilizing level). - Staff recommend aiming for a structural primary balance close to zero by 2028, requiring structural adjustment of about 0.3 percent of GDP per year during 2025–28. - In the longer run, such a balance would stabilize debt below the 60 percent of GDP European target while also providing a modest cushion against adverse shocks. - Medium- and long-term pressures - Projected increases in aging-related costs (pensions, long-term care, and healthcare), interest expense, and defense spending (Figure 6 referenced). ### Options to increase fiscal room (findings and quantified potential) - Measures and estimated net fiscal savings by 2030 (percentage points of GDP) - Reducing energy-intensive subsidies: 0.8 - Achieving efficiencies in healthcare spending: 1.0 - Pension reform: 0.4 - Increase property tax: 0.8 - Inheritance and gift tax: 0.2 - Enhancing government finance: n.c. - Total: 3.2 - Additional details and policy options - Cut environmentally harmful subsidies and tax expenditures. - Adopt further pension reforms and improve healthcare spending efficiency, including increasing use of outpatient care. - Update property tax valuations (last comprehensive update of property values based on actual market prices was in 1973). - Evaluate scope for introducing inheritance and gift taxes. - Strengthen subnational fiscal constraints to avoid common-pool problems. - Ensure effective utilization of full allocation from the EU Recovery and Resilience Facility. - Authorities’ view on reforms - Authorities agree on exercising fiscal prudence and rebuilding buffers. - Gradual alignment of women’s retirement age with that of men to 65 years is anticipated to reduce pension spending. - Authorities plan to reduce environmentally harmful subsidies to align with the European average (politically challenging). - Regular spending reviews are being conducted under the umbrella of the EU, focusing primarily on environmental and structural issues. - Recent measures to enhance outpatient care and strengthen primary healthcare are expected to help lower health spending over the medium term. - Authorities emphasize proactive debt management and issuance of bonds earmarked for green infrastructure projects. ### Financial sector policies — risks and prudential guidance - Key risks - NPLs may rise somewhat due to lagged effects from the substantial rise in interest rates over the last two years. - High share of variable-rate mortgages: around 45 percent. - House prices have fallen by about 4 percent (11 percent in real terms) over the year since the peak in 2022Q3 and are assessed to be overvalued by 30 percent by staff estimates in 2022. - Austrian banks’ CRE lending has grown to 20 percent of total bank loans. - Total volume of CRE bank loans is €190 billion, of which exposure toward foreign borrowers is about one–fifth. - Banks’ exposure to CESEE countries poses additional risks amid heightened geopolitical tensions. - Lending rates have responded more quickly to higher policy rates than deposit rates; as deposit rates catch up and depositors shift to higher-yielding term deposits, net interest margins are expected to decline somewhat. - Prudential and supervisory measures - Banks should use recent strong profits to build buffers and be conservative in capital distributions; invest in cybersecurity and security technology. - Authorities increased bank-specific capital buffer requirements (O-SII and SyRB) in January 2023 by up to 50 basis points, phased in over 2023–24 at 25 basis points each year (to be re-evaluated in 2024). - The countercyclical capital buffer (CCyB) is set at zero given the large negative credit-to-GDP gap (-16.4 percent in 2023Q3; ECB estimate). The CCyB could be increased in upside scenarios if credit growth rebounds. - RRE borrower-based measures (mortgage limits) - Mandatory borrower-based measures introduced in mid-2022 remain in place through June 2025 and may be extended for two years with legislative approval. - Measures include: loan-to-value (LTV) cap of 90 percent, debt-service-to-income cap of 40 percent, maturity limits set at 35 years, and a limit of 20 percent on exemptions (introduced in August 2022; April 2023 adjustments noted). - Share of new loans with LTVs in excess of 90 percent fell from 59 percent in 2022Q3 to 17 percent in 2023Q2. - These measures should be maintained as permanent, structural measures; settings are not especially tight in international comparison given substantial exemptions. - CRE monitoring and data gaps - Continued efforts are needed to address macroprudential data gaps: produce and publish data on CRE prices, rental returns, and debt-service-coverage ratios. - Banks should remain proactive in provisioning CRE loans and apply conservative valuations to CRE assets. - Progress on FSAP recommendations and outstanding actions - Progress: mandatory guidance limits on real estate lending; stress testing in 2023 of insurance firms against material risks. - Outstanding: adopting legislation to strengthen resolution and bankruptcy regimes and statutory independence of financial-sector supervision and regulation. - Authorities’ views on financial sector - Authorities agreed on elevated CRE risks and expected decreases in net interest margins. - Supervisors are encouraging banks to strengthen capital bases and provision proactively in CRE. - On data gaps, authorities expect CRE market indices on prices, rents, and yields may only be available by 2025 due to data quality requirements. - OeNB and FMA stress resisting pressures to weaken borrower-based measures. - Authorities view the CCyB setting as appropriate given the negative credit gap; adjustments to CCyB may be possible based on broader cyclical indicators. ### Structural policies to boost growth and resilience - Labor supply and demographic challenges - Female participation: female workers work substantially fewer hours than the average European country, largely due to higher prevalence of part-time work and insufficient childcare availability (especially outside major cities). - Elderly participation: relatively low labor-force participation among elderly workers compared to other European countries, attributed in part to a comparatively generous pension system and greater prevalence of health concerns for ages 55 and older. - Policy impact estimates: - Closing gender and elderly labor supply gaps relative to the EU average would offset more than 20 years of demographic aging in terms of the effect on GDP. - Further expanding childcare facilities, eliminating the gender wage gap, and mitigating societal norms could boost labor supply by up to 20 percent and increase real GDP by up to 15 percent over time. - Lowering pension replacement rates to the EU average could boost labor supply by 0.5 percent, result in a 0.4 percent expansion of real GDP, and yield a large net revenue increase of 2 pp of GDP. - Recommended measures: expand childcare facilities, combat gender pay gaps via wage transparency, continue integration of migrants with language/literacy courses and recognition of credentials. - Housing supply and affordability - Supply of new housing has fallen short of household formation, especially in Vienna, contributing to a 74 percent increase in real house prices from 2010 to end-2021. - House price-to-rent ratios and house price-to-income ratios have increased more than regional peers; sizable house price overvaluation cited. - Contributing factors: relatively strict rent controls, land-use regulations, and slow permitting procedures. - Policy options: ease disincentives and regulatory constraints on new construction, increase taxes on vacant land zoned for residential housing to incentivize building. - Green transition and energy security - Existing mechanisms: EU Emissions Trading System (ETS) and domestic carbon pricing (NEHG) introduced in 2022. - EU ETS 2 scheduled to launch in 2027 and integrate the current NEHG. - Austria’s current trajectory for reductions in non-ETS emissions falls significantly short of its 2030 target of a 48 percent reduction compared to 2005. - Bottlenecks: regulatory delays in permitting of green projects; environmental impact assessment law amended in 2023 to streamline the process; further legislative steps underway. - Recommended additional actions: increase share of renewables, boost green infrastructure and transportation and space heating efficiency, increase public investment in the green transition, address skill shortages in key occupations. - Geo-economic fragmentation (GEF) and competitiveness - Austria should prepare for GEF-related risks and undertake structural reforms to bolster competitiveness. - Suggested actions: identify products exposed to fragmentation risk, stress-test GVCs, develop coping strategies for disruptions, monitor sanction-related risks in financial sector. - Structural reforms include swift implementation of the 2023 National Strategic Roadmap for the Digital Decade of Austria and reducing barriers to digitalization (Platform for Infrastructure Development (PIA 2030)), improving connectivity of rural areas. - Remaining reforms to fulfill RRF milestones should be implemented without delay to receive the second and third payments. *Source: 1autea2024001 - 14. Spending restraint and structural fiscal measures are needed to rebuild buffers and* ### 27. The authorities broadly shared staff’s views on structural policy priorities. They agreed ### 1autea2024001 - 27. The authorities broadly shared staff’s views on structural policy priorities. They agreed ### Structural policy priorities and authorities' views - Authorities agreed on the importance of enhancing labor force participation to counteract the drag on growth from demographic aging. - Measures already taken or planned to increase full-time employment: - Securing additional funding to expand childcare availability. - Increasing incentives to work beyond the age of 65. - Rolling out language and literacy programs for migrants. - Authorities anticipate that higher educational achievements would help mitigate the impact of aging on growth through increased productivity. - Green transition: - Authorities agreed further measures are necessary to fulfill their 2030 emissions goal, notwithstanding progress made in reducing emissions and promoting renewable energy usage. - Identified impediments: long lead time for obtaining permits for relevant projects and state-level planning restrictions. - A legislative review to streamline permitting processes is underway. - Housing: - Authorities viewed supply shortages as mainly a problem in Vienna. - Other regions are likely to be somewhat oversupplied following the pickup in housing completions over the past decade. ### AML/CFT issues and transnational corruption - 2021 national ML/TF risk assessment (NRA) findings: - Identified elevated risks facing the Austrian banking sector, including relationships with non-resident customers and politically exposed persons, and growing correspondent banking relationships. - FMA supervisory developments: - The FMA’s risk assessment tool utilizes an extensive AML dataset that allows the FMA to perform a well-informed risk classification. - Sustained supervisory action has seen a recent decline in business relationships with offshore links. - FMA’s stringent focus on AML/CFT measures for entry to the Virtual Asset Service Provider (VASP) industry has seen a more than 50 percent reduction of registered/active VASPs, largely due to lack of AML capacity. - Recommended enhancements: - Austria’s monitoring of ML/TF cross-border risks could be enhanced by utilizing cross-border payments data and application of analytical methods to enhance understanding of risks of cross-border flows linked to higher risk jurisdictions exposed to ML and other crimes. - Authorities’ stance: - Agreed that the national framework to address transnational aspects of corruption should form a part of Fund surveillance. - Concurred with staff’s assessment of AML/CFT challenges and developments and will continue to tighten focus on risks arising from international business in certain regions (including further developing financial flows analysis) and VASP operations. - Will prepare for impending changes to the EU AML/CFT supervisory framework and the FATF mutual evaluation. - Box 1 summary: Frameworks for combatting transnational corruption - Foreign bribery: - Risks are described as moderate, but further efforts are called for. - None of the 500 largest multinational enterprises (MNEs) is headquartered in Austria, and the scale of foreign direct investment is not large in a global context. - Since the OECD Phase 3 evaluation, instances of foreign bribery cases involving Austrian companies in Central and Eastern Europe have occurred. - The 2015 follow-up acknowledged measures to pursue legal persons for foreign bribery and promote prosecution, but more efforts are needed: removing impediments to effective investigations and prosecutions; enhancing prevention and detection; increasing maximum fines available for companies. - Authorities reported recent legislative progress, such as amendment of the Austrian Federal Statute on Responsibility of Entities for Criminal Offences and the adoption of the Whistleblower Protection Act in 2023. - The Phase 4 evaluation of Austria has been initiated; the on-site visit was conducted from January 29–February 2, 2024. - Anti-money laundering mitigating measures and beneficial ownership: - Mitigating measures are being strengthened, but professional enablers continue to be exposed to risk of laundering of foreign proceeds of corruption. - Beneficial ownership of legal entities continues to pose challenges. - Supervisors of lawyers and notaries have developed on- and off-site supervisory procedures; need to improve collection of statistics to assess risks properly. - Amendments to establish umbrella supervisory jurisdiction of the Austrian Chamber of Notaries are being discussed. - Bar Associations highlighted difficulties with establishing beneficial ownership of overseas clients. - Austrian Register of Beneficial Owners provides guidance; Beneficial Ownership Registers Interconnection System (BORIS) will provide access across the EU. - Issues remain following the European Court of Justice decision to remove public access to the registers; access beyond the EU is subject to data protection equivalence standards, which continues to present challenges. ### Staff appraisal: macroeconomic and policy findings - Recent macro developments and outlook: - Strong policy responses mitigated recent severe economic shocks; growth rebounded strongly from the pandemic with output rising back above pre-pandemic levels. - Economy contracted in 2023 as high energy prices, elevated inflation, and rising interest rates weighed on output. - Growth is expected to recover modestly in 2024 on rising real wages and build momentum in subsequent years as investment demand recovers. - Inflation is expected to decline gradually to target as lower energy prices pass through and wage growth moderates, but it will be some time before inflation reaches two percent given its current elevated level and sticky services inflation. - Notable risks relate to uncertainties around external demand and energy market developments, inflation persistence, and the depth and speed of real estate market corrections. - Fiscal policy recommendations: - Seek opportunities to overperform the deficit target in 2024 to support disinflation and rebuild buffers. - Phase out remaining energy-price relief measures as early as possible, now that wholesale gas prices have normalized. - Save any revenue overperformance and avoid adopting new deficit-creating measures during the year. - Remain agile: ease (accelerate) adjustment if growth and inflation surprise sharply on the downside (upside). - Medium-term fiscal strategy: - Steady fiscal consolidation remains important; pandemic and energy shock have diminished fiscal buffers. - Structural spending pressures expected to increase due to rising aging-related costs, interest payments, and green transition investment needs. - Expenditure and tax reform measures needed to offset pressures and put public-debt ratio on a clear downward path. - Specific options include: eliminating environmentally harmful subsidies; updating outdated property tax valuations; undertaking further pension reforms; improving healthcare spending efficiency; restricting low-priority spending. - Financial sector and macroprudential advice: - Financial system remains stable, liquid, and profitable, but continued close monitoring of risks is warranted. - Data gaps in the CRE sector complicate full assessment of broader risks from CRE exposures; authorities should close data gaps by producing and publishing data on CRE prices, rental returns, and debt-service coverage ratios. - Banks should conserve likely temporary high profits to strengthen capital buffers and improve protection against risks. - Supervisors should encourage banks to be conservative in capital distributions and use current high profits to build buffers, including against cybersecurity risks. - Implementation of higher O-SII and systemic risk buffers in 2022 for individual banks is welcome. - The CCyB could be increased above zero once the credit cycle turns and shifts into expansionary territory. - Pressures to weaken prudential lending standards for mortgages should be resisted; mandatory limits should be retained as a permanent, structural measure. - Housing affordability efforts should focus on boosting housing supply (easing slow permitting procedures, reviewing land-use and rental regulation) rather than increasing household leverage. - Implementing key outstanding recommendations from the 2020 Financial System Stability Assessment would further reduce risks; progress is encouraged on strengthening statutory independence of financial supervision and revising bankruptcy and resolution legislation. - Labor force participation and demographic policy: - Reducing constraints to greater labor force participation, especially among women and the elderly, will help address growth challenges from demographic headwinds. - Authorities have taken steps: allocating more resources for childcare services; increasing the retirement age for women to over time equal that of men. - Further enhancements: more ambitious targets for childcare services across Austria; continued efforts to close the wage gap for female workers; additional pension reforms to boost elderly labor force participation; deepen integration of immigrants into the labor force. - Green transition and energy security: - Austria has implemented a national carbon price and expanded renewable energy generation. - Current trajectory of emission reductions falls short of emission reduction commitments. - Authorities should ensure necessary resources are deployed to meet green transition investment needs, reduce delays in permitting to speed up green infrastructure investment, and address skill shortages in occupations critical for the green transition. - Geoeconomic fragmentation and competitiveness: - Austria should prepare for risks from geoeconomic fragmentation and undertake further structural reforms to bolster productivity and maintain competitiveness. - External position assessed to be broadly consistent with level implied by medium-term fundamentals and desirable policies. - Austria is encouraged to support solutions that preserve benefits of global integration and multilateralism, while domestically securing supply chains and accelerating the green transition to strengthen energy security. - Continued efforts to expand digitalization, including by implementing Austria’s 2030 Broadband Strategy, will support competitiveness and medium-term growth. *Source: 1autea2024001 - 27. The authorities broadly shared staff’s views on structural policy priorities. They agreed* ### 41. It is proposed that the next Article IV consultation with Austria take place on the ### It is proposed that the next Article IV consultation with Austria take place on the standard 12-month cycle. ### Real sector: broad-based weakness and activity indicators - Finding: "Economic weakness has been broad-based." - Sector output: - "Output in energy-intensive sectors has declined." - Chart indicators (quarterly GVA components): Industry ex construction, Construction, Services, GVA at factor cost (Quarter-on-quarter percent change; SWDA) shown across Q1-2022 to Q4-2023. - Industrial production and capacity: - Industrial Production index: (Index, 2019M1=100; SA) series for "Energy-intensive" and "Other" from Jan-19 to Jan-24. - "Capacity utilization has declined since the recovery." (Industry Capacity Utilization, Percentage; SA) - Production constraints: - "Weak demand is an increasingly important factor." (Factors Limiting Production: Equipment, Labor, Demand; Percentage; SA) - Sentiment: - "Sentiment is weak among producers and consumers." (Business and Consumer Sentiment; Percent balance; SA) - "Manufacturing PMIs remain in the contraction zone." (Manufacturing output, Manufacturing new orders, Manufacturing PMI; 50+=expansion; SA) ### External developments: current account, trade, NIIP, REER, tourism - Current account: - "The current account shrank in 2022 but rebounded in 2023." (Current Account Balance Breakdown; Percent of GDP; 2000–2023) - Trade flows: - "Import growth has declined on weak domestic demand." (Exports and Imports of Goods and Services; Year-on-year percent change; SWDA) - Exports and imports series shown for goods and services (Q1-2015 to 2023). - International investment position: - "The net NIIP remains modest." (Net International Investment Position by Instrument; Percent of GDP) - Net IIP (RHS) and detailed instrument breakdown (Reserve assets; Other investment; Loans and currency; Financial derivatives; Portfolio investment; Direct investment). - Exchange rate: - "The REER appreciated in 2023." (Real Effective Exchange Rate, Index, 2010M1=100; CPI-based and ULC-based) - Exports structure and tourism: - "Austria has diversified goods exports." - "Tourism exports rebounded after the pandemic." (Tourist Arrivals, Million people; 12-month-moving-sum) ### Fiscal developments: debt, withdrawal of support, aging pressures - Fiscal position and projections: - "Public debt remains somewhat elevated over the forecast horizon." - Fiscal balance and debt series with Overall balance, Primary balance, General government gross debt (RHS); Percent of GDP (2018–2026). - Fiscal impulse series: 2022–2025 (Percentage point; Change in cyclically adjusted primary fiscal deficit as percent of GDP). - Demographics and ageing cost: - "As in most other European countries, Austria’s population is aging... and aging costs are high." - Population Projection (Percent of population; percent of working age population) through 2070: shares for "Austria: working-age population", "EU: working-age population", "Austria: old-age dependency ratio", "EU: old-age dependency ratio" (source: European Commission 2021 Ageing Report). - Projected Ageing Cost (Percent of GDP) series for Austria and EU (2019–2070). - Policy stance: - "Fiscal support is being withdrawn as crises recede." (Fiscal Impulse and decline in crisis-related measures implied in charts) ### Housing sector: construction headwinds and weak credit demand - Construction and investment: - "Construction sector faces headwinds. Falling dwelling investment is dragging down capital formation." - Residential Building Permits in Square Meters (Index, 2021=100; SWDA) series Q1-2015 to 2023. - Real Total Investment and Dwellings Investment (Year-on-year percent change; SWDA). - Housing credit and household loans: - "Demand for housing loans remains weak. Household credit growth has weakened considerably." - Credit Demand for Mortgage Loans over Past 3 Months (Diffusion index: negative=decreased 1/), Q1-2015 to Q1-2024. - Loans to Households: "Loans for housing purpose" and "Total loans" (Percent; Annual growth rate) series Jan-08 to Jan-24. ### Financial sector: profitability and income trends - Profitability and costs: - "Austrian banks’ ROA has rebounded." - Mean Return on Assets (Percent; Asset weighted average ratios) series 1993–2023: Austria vs Europe ex Austria. - "ROE has improved as well." - Mean Return on Equity (Percent; Asset weighted average ratios) series 1993–2023. - "Cost to income has declined." (Cost to Income Ratio, Percent, 1993–2023) - Interest income and expenses: - "Interest income started to rise in 2022." (Net interest income to assets; Gross interest income to assets; Interest expense to assets; Percent, long-run series) ### Structural labor market: hours, part‑time work, participation, pension replacement - Work hours and part-time: - "Average weekly hours are below other European countries..." (Average Weekly Hours, Hours; periods 1998–2002 through 2018–2022) - "...due to the prevalence of part-time jobs among women..." (Female Part-time Work by Age, 2019; Percent of total female worker) - Reason for female working less than 30 hours (Percent of female respondent, 2019): "Housework, looking after children or other persons" 52%; "Undergoing education or training" 11%; "Do not want to work more hours" 10%; "Wants to work more hours but cannot find a job(s) or work(s) of more hours" 6%; "Personal illness or disability" 4%; "Number of hours in all job(s) are considered as a full-time job" 2%; "Other reasons" 14%. - Gender wage gap: - "…and a large gender wage gap." (Gender Hour Pay Gap, 2022: country-level percent unadjusted; Austria shown among peers) - Labor force participation and pensions: - "Elderly participation is also subdued for both genders... which may partly reflect relatively high pensions." - Labor Force Participation Rate by Age Group and Sex (Percent; 2018–2022): female and male 15-59 and 60-64 series. - Pension Replacement Rates (Percent; Average earners) plotted for multiple countries with Austria labeled (Net and Gross; value for Austria shown as 65). ### Key macroeconomic indicators and projections (Table 1 highlights, 2019–29) - Growth and demand: - Real GDP (expenditure): 2019 1.5; 2020 -6.6; 2021 4.2; 2022 4.8; 2023 -0.8; 2024 0.3; 2025 1.6; 2026 1.4; 2027 1.0; 2028 0.9; 2029 0.9 - Domestic demand: 2019 0.4; 2020 -6.1; 2021 6.7; 2022 2.7; 2023 -1.7; 2024 -0.1; 2025 1.4; 2026 1.0; 2027 0.9; 2028 1.0; 2029 1.0 - Gross fixed capital formation: 2019 4.5; 2020 -5.5; 2021 6.1; 2022 0.1; 2023 -2.4; 2024 -4.4; 2025 0.6; 2026 0.8; 2027 0.9; 2028 0.9; 2029 0.9 - Labor market: - Unemployment rate (EU harmonized): 2019 4.8; 2020 5.5; 2021 6.2; 2022 4.7; 2023 5.1; 2024 5.4; 2025 5.2; 2026 5.1; 2027 5.1; 2028 5.0; 2029 5.1 - Wages (hourly): 2019 3.3; 2020 6.0; 2021 0.8; 2022 5.1; 2023 7.3; 2024 8.6; 2025 4.5; 2026 3.4; 2027 2.8; 2028 2.5; 2029 2.6 - Prices: - Consumer prices (avg): 2019 1.5; 2020 1.4; 2021 2.8; 2022 8.6; 2023 7.7; 2024 4.0; 2025 2.8; 2026 2.3; 2027 2.0; 2028 2.1; 2029 2.1 - Consumer prices (eop): 2019 1.8; 2020 1.0; 2021 3.8; 2022 10.5; 2023 5.7; 2024 3.2; 2025 2.4; 2026 2.0; 2027 2.1; 2028 2.1; 2029 2.1 - Fiscal and debt: - Revenue: 2019 49.2; 2020 48.8; 2021 50.4; 2022 49.7; 2023 49.4; 2024 49.6; 2025 49.4; 2026 49.2; 2027 49.2; 2028 49.2; 2029 49.2 (Percent of GDP) - Expenditure: 2019 48.7; 2020 56.8; 2021 56.2; 2022 52.9; 2023 52.1; 2024 52.4; 2025 51.6; 2026 51.3; 2027 51.2; 2028 51.3; 2029 51.3 (Percent of GDP) - Net lending/borrowing: 2019 0.5; 2020 -8.0; 2021 -5.8; 2022 -3.2; 2023 -2.7; 2024 -2.8; 2025 -2.2; 2026 -2.0; 2027 -2.1; 2028 -2.1; 2029 -2.1 (Percent of GDP) - Gross debt: 2019 70.6; 2020 82.9; 2021 82.5; 2022 78.4; 2023 77.7; 2024 77.2; 2025 76.5; 2026 76.2; 2027 76.3; 2028 76.4; 2029 76.3 (Percent of GDP) - External sector: - Current account (% GDP): 2019 2.4; 2020 3.4; 2021 1.6; 2022 -0.3; 2023 2.7; 2024 2.0; 2025 2.2; 2026 2.4; 2027 2.3; 2028 2.3; 2029 2.3 - Memorandum: - Nominal GDP (billions of euro): 2019 397.1; 2020 380.9; 2021 405.2; 2022 447.2; 2023 477.5; 2024 499.1; 2025 520.9; 2026 539.7; 2027 556.6; 2028 572.8; 2029 589.6 - Population (millions): 2019 8.9; 2020 8.9; 2021 8.9; 2022 9.0; 2023 9.1; 2024 9.1; 2025 9.2; 2026 9.2; 2027 9.2; 2028 9.2; 2029 9.3 ### General government fiscal accounts (Table 2 highlights, 2019–29) - Revenue and tax composition: - Revenue: 2019 49.2; 2020 48.8; 2021 50.4; 2022 49.7; 2023 49.4; 2024 49.6; 2025 49.4; 2026 49.4; 2027 49.2; 2028 49.2; 2029 49.2 (Percent of GDP) - Tax revenue: 2019 27.7; 2020 26.6; 2021 28.0; 2022 28.4; 2023 27.8; 2024 27.7; 2025 27.5; 2026 27.3; 2027 27.4; 2028 27.4; 2029 27.5 - Social contributions: 2019 15.4; 2020 16.0; 2021 15.9; 2022 15.2; 2023 15.2; 2024 15.6; 2025 15.7; 2026 15.8; 2027 15.8; 2028 15.8; 2029 15.8 - Expenditure composition: - Expenditure: 2019 48.7; 2020 56.8; 2021 56.2; 2022 52.9; 2023 52.1; 2024 52.4; 2025 51.6; 2026 51.3; 2027 51.2; 2028 51.3; 2029 51.3 - Social benefits: 2019 21.9; 2020 24.5; 2021 24.0; 2022 22.5; 2023 22.5; 2024 23.5; 2025 23.5; 2026 23.5; 2027 23.6; 2028 23.7; 2029 23.7 - Interest: 2019 1.4; 2020 1.3; 2021 1.1; 2022 0.9; 2023 1.2; 2024 1.3; 2025 1.5; 2026 1.6; 2027 1.7; 2028 1.7; 2029 1.7 - Balance and debt metrics: - Operating balance: 2019 3.7; 2020 -4.6; 2021 -2.2; 2022 0.9; 2023 0.9; 2024 0.7; 2025 1.2; 2026 1.3; 2027 1.3; 2028 1.3; 2029 1.3 - Primary balance: 2019 1.6; 2020 -7.0; 2021 -4.9; 2022 -2.5; 2023 -2.0; 2024 -1.9; 2025 -1.0; 2026 -0.8; 2027 -0.8; 2028 -0.8; 2029 -0.8 - Gross Debt (Maastricht def.): 2019 70.6; 2020 82.9; 2021 82.5; 2022 78.4; 2023 77.7; 2024 77.2; 2025 76.5; 2026 76.2; 2027 76.3; 2028 76.4; 2029 76.3 ### Balance of payments (Table 3 highlights, 2019–29) - Current account and composition: - Current Account: 2019 2.4; 2020 3.4; 2021 1.6; 2022 -0.3; 2023 2.7; 2024 2.0; 2025 2.2; 2026 2.4; 2027 2.3; 2028 2.3; 2029 2.3 (Percent of GDP) - Exports of goods and services: 2019 55.7; 2020 51.5; 2021 55.9; 2022 62.1; 2023 59.4; 2024 60.2; 2025 59.3; 2026 59.5; 2027 59.3; 2028 59.3; 2029 59.2 - Imports of goods and services: 2019 52.2; 2020 48.2; 2021 55.2; 2022 61.7; 2023 55.8; 2024 56.8; 2025 56.0; 2026 55.9; 2027 55.8; 2028 55.8; 2029 55.7 - Financial account and NIIP: - Financial Account: 2019 3.7; 2020 1.7; 2021 0.9; 2022 -2.1; 2023 1.2; 2024 2.1; 2025 2.3; 2026 2.6; 2027 2.4; 2028 2.4; 2029 2.4 - Int'l Investment Position, net: 2019 14.4; 2020 12.3; 2021 15.6; 2022 17.6; 2023 16.6; 2024 20.5; 2025 22.0; 2026 23.8; 2027 25.5; 2028 27.2; 2029 28.8 (Percent of GDP) ### Financial soundness indicators (Table 4, 2015–2023Q3) - Core FSIs (selected): - Regulatory capital to risk-weighted assets: 2015 16.5; 2016 18.0; 2017 18.8; 2018 18.8; 2019 18.9; 2020 19.7; 2021 19.2; 2022 19.3; 2023Q3 19.4 (Percent) - Nonperforming loans to total gross loans: 2015 3.4; 2016 2.7; 2017 2.4; 2018 2.9; 2019 2.4; 2020 2.4; 2021 2.1; 2022 2.0; 2023Q3 2.0 (Percent) - Return on assets: 2015 0.6; 2016 0.6; 2017 0.9; 2018 0.9; 2019 0.8; 2020 0.4; 2021 0.7; 2022 1.1; 2023Q3 1.6 (Percent) - Return on equity: 2015 7.2; 2016 7.0; 2017 10.0; 2018 8.5; 2019 7.5; 2020 3.7; 2021 6.5; 2022 10.2; 2023Q3 14.7 (Percent) - Additional FSIs: - Customer deposits to total (noninterbank) loans: series showing 85.3 (2015), 89.5 (2016), 86.9 (2017), 85.9 (2018), 86.0 (2019), 79.0 (2020), 76.3 (2021), 88.6 (2022), 86.3 (2023Q3) ### Depository Corporations Survey (Table 5, 2018–23) - Monetary aggregates and banking sector stocks: - Broad Money (end of period, euros): 2018 361.0; 2019 377.1; 2020 415.4; 2021 431.0; 2022 449.2; 2023 450.5 - Claims on private sector (end of period, euros): 2018 370.2; 2019 379.5; 2020 430.7; 2021 427.4; 2022 424.4; 2023 439.3 - Claims on households (end of period, euros): 2018 184.4; 2019 187.7; 2020 212.4; 2021 208.2; 2022 202.1; 2023 204.7 - Growth rates (annual percentage change): - Broad Money: 2018 6.6; 2019 4.5; 2020 10.1; 2021 3.8; 2022 4.2; 2023 0.3 - Claims on private sector (annual percent change): 2018 4.5; 2019 5.0; 2020 3.6; 2021 6.8; 2022 6.0; 2023 0.3 - Memorandum: - Velocity (GDP/Broad money): 2018 1.1; 2019 1.1; 2020 0.9; 2021 0.9; 2022 1.0; 2023 1.1 - Euro per U.S. dollar (end of period): 2018 0.9; 2019 0.9; 2020 0.8; 2021 0.9; 2022 0.9; 2023 0.9 *Source: International Monetary Fund staff compilation from the Austria Article IV material (figures, tables, and charts contained in the provided content).* ### Annex I . Labor Market Slack and the Output Gap ### Annex I . Labor Market Slack and the Output Gap ### Strength of the unemployment–output gap link - Cross-country studies report a median Okun coefficient for advanced economies of around -0.4. - Austria-specific estimates are much smaller: Ball, Leigh, and Loungani (IMF 2013) estimate Austria’s Okun coefficient at -0.14, indicating a relatively weak link between the unemployment gap and the output gap. - Using a quarterly sample from 2000Q1 to 2023Q2, the Okun-style regression in terms of the unemployment gap ((U* - U)) yields a coefficient with an absolute value of about 0.19. ### Hours worked as a better indicator of slack - A regression of (HP-filtered) detrended seasonally adjusted hours worked (H - H*) on detrended seasonally adjusted real GDP (y - y*) produces a much larger coefficient than the unemployment-gap specification, indicating a closer relationship when slack is measured in hours: - Equation: y = 0.1918x + 0.0007 - R² = 0.5366 - Equation: y = 0.8705x + 0.0011 - R² = 0.7425 - The coefficient in terms of (H* - H) is nearly 0.9, with a higher R², suggesting that adjustments in hours worked explain more of Austria’s output gap variation than movements in the unemployment rate. ### Role of Kurzarbeit and interpretation for 2023 - The prominence of hours adjustments may relate to employment-preserving short-term work schemes (Kurzarbeit) that enable employers to retain workers while adjusting hours worked. - Kurzarbeit uptake rose sharply during the COVID-19 pandemic to more than 1 million workers on short-term work by mid-2020, from just hundreds previously, which dampened the rise in the unemployment rate during that period. - Labor market indicators for 2023: - Gap in total hours worked in 2023Q3: +1.4 percent - Capacity utilization rate: 84.1 percent in 2024Q1 (79.1 percent in EU) - Historical average capacity utilization: 85.3 percent (80.8 percent in EU) - These figures imply a small positive hours worked gap in 2023 and that the output gap in Austria was negligible; staff estimate the output gap to be broadly closed in 2023. *Source: IMF staff calculations.* ### 5. Debt consolidation across sectors: ### 5. Debt consolidation across sectors: ### Coverage and recording - Debt coverage remains unchanged from the last Article IV. Austria's debt coverage and disclosure are consistent with standard recommendations. - Basis of recording / valuation notes (as reported): - NFPS - GG: expected - CG - Non-cash basis 4/ - CPS - Reporting on Intra-Government Debt Holdings - Debt securities - Definitions / footnotes retained from source (select): - 1/ CG=Central government; GG=General government; NFPS=Nonfinancial public sector; PS=Public sector. - 2/ Stock of arrears could be used as a proxy in the absence of accrual data on other accounts payable. - 3/ Insurance, Pension, and Standardized Guarantee Schemes, typically including government employee pension liabilities. - 4/ Includes accrual recording, commitment basis, due for payment, etc. - 5/ Nominal value at any moment in time is the amount the debtor owes to the creditor. - 6/ The face value of a debt instrument is the undiscounted amount of principal to be paid at (or before) maturity. - 7/ Market value of debt instruments is the value as if they were acquired in market transactions on the balance sheet reporting date (reference date). ### Public debt structure — key statistics and characteristics - Currency and marketability: - Commentary: Public debt is in local currency and marketable. - Holder composition changes (2014 → 2022): - Share held by the central bank: from zero in 2014 to 20 percent in 2022. - Share of external private creditors: from 54 percent in 2014 to 32 percent in 2022. - Instrument and maturity profile: - Over 46 percent of the central government debt has residual maturity of more than 5 years. - Over 90 percent is at fixed interest rates. - Below 20 percent is short-term. - Residual maturity reported: 11.4 years. ### Baseline scenario projections (Percent of GDP unless indicated) - Public debt: - Actual 2023: 77.7 - 2024: 77.2 - 2025: 76.5 - 2026: 76.2 - 2027: 76.3 - 2028: 76.4 - 2029: 76.3 - 2030: 76.2 - 2031: 76.1 - 2032: 75.9 - 2033: 75.8 - Change in public debt: - 2023: -0.7 - 2024: -0.6 - 2025: -0.7 - 2026: -0.3 - 2027: 0.1 - 2028: 0.1 - 2029: 0.0 - 2030: -0.1 - 2031: -0.1 - 2032: -0.2 - 2033: -0.2 - Contribution of identified flows (same sequence): - -2.3; -0.6; -0.7; -0.3; 0.1; 0.1; 0.0; -0.1; -0.1; -0.2; -0.2 - Primary deficit (percent of GDP): - 2023: 2.0 - 2024: 1.9 - 2025: 1.0 - 2026: 0.8 - 2027: 0.9 - 2028: 0.8 - 2029: 0.8 - 2030: 0.8 - 2031: 0.8 - 2032: 0.8 - 2033: 0.8 - Noninterest revenues (percent of GDP): 49.0; 49.2; 49.0; 48.9; 48.8; 48.8; 48.8; 48.8; 48.8; 48.8; 48.8 - Noninterest expenditures (percent of GDP): 50.9; 51.0; 50.1; 49.7; 49.7; 49.6; 49.6; 49.6; 49.6; 49.6; 49.6 - Automatic debt dynamics (contribution, percent of GDP): -3.8; -2.0; -1.4; -0.8; -0.4; -0.3; -0.4; -0.4; -0.5; -0.5; -0.5 - Real interest rate and relative inflation components: - Real interest rate: -4.5; -1.6; -0.2; 0.3; 0.4; 0.4; 0.3; 0.3; 0.2; 0.2; 0.2 - Relative inflation: 0.0 across reported years - Other identified flows: -0.5; -0.4; -0.4; -0.4; -0.4; -0.4; -0.5; -0.5; -0.5; -0.5; -0.5 - (minus) Interest Revenues: -0.5; -0.4; -0.4; -0.4; -0.4; -0.4; -0.5; -0.5; -0.5; -0.5; -0.5 - Contribution of residual: 1.6 in 2023; 0.0 thereafter - Gross financing needs: - 2023: 10.0 - 2024: 9.8 - 2025: 8.1 - 2026: 8.6 - 2027: 7.5 - 2028: 10.1 - 2029: 9.1 - 2030: 8.5 - 2031: 8.4 - 2032: 9.1 - 2033: 8.4 - Of which: debt service (percent of GDP): - 8.5; 8.3; 7.4; 8.2; 7.0; 9.7; 8.7; 8.2; 8.1; 8.8; 8.1 - Currency composition of financing needs: - Local currency equals the debt service series above. - Foreign currency: 0.0 across reported years. - Memo: - Real GDP growth (percent): -0.8; 0.5; 1.6; 1.4; 1.0; 0.9; 0.9; 0.9; 0.9; 0.9; 0.9 - Inflation (GDP deflator; percent): 7.7; 4.0; 2.7; 2.2; 2.1; 2.0; 2.0; 2.0; 2.0; 2.0; 2.0 - Nominal GDP growth (percent): 6.8; 4.5; 4.4; 3.6; 3.1; 2.9; 2.9; 2.9; 2.9; 2.9; 2.9 - Effective interest rate (percent): 1.6; 1.8; 2.5; 2.6; 2.6; 2.5; 2.4; 2.4; 2.3; 2.3; 2.3 - Commentary: Public debt declined to 77.7 percent of GDP in 2023, remaining at a similar level over the medium-term as overall balance stabilizes to around 2 percent. ### Medium-term risk assessment — metrics and signals - Debt fanchart module: - Fanchart width28.10.4 - Probability of debt non-stabilizaiton (percent): 73.8 0.6 - Terminal debt-to-GDP x15.9 0.3 - Debt fanchart index (DFI): 1.4 - Risk signal: 3/Moderate - Gross Financing Needs (Percent of GDP) module: - Average baseline GFN8.9 3.0 (percent of GDP) - Initial Banks' claims on the gen. govt (pct bank assets): 3.7 1.2 - Chg. In banks' claims in stress (pct banks' assets): 1.0 0.3 - GFN financeability index (GFI): 4.5 - Risk signal: 4/Low - Medium-term index: - Debt fanchart index 1.4 - GFN financeability index 4.5 - Final assessment: Prob. of missed crisis, 2024-2029, if stress not predicted: 9.1 pct. - Prob. of false alarms, 2024-2029, if stress predicted: 56.8 pct. - Comment: Of the two medium-term tools, the Debt Fanchart Module points to a moderate level of risk, while the GFN Financeability Module suggests a low level of risk. - Source for indices and projections: IMF staff estimates and projections. ### Realism of baseline assumptions — summary of findings - The forecast track record figure does not present major realism issues. - Projected change in public debt is similar to the past 5 years; pattern of contributions broadly similar between the baseline and recent past. - Stable pattern in implied spreads and maturity structure stays similar. - Realism analysis: - Projected 3-year reduction in the debt-to-GDP ratio is large compared to other countries (in the yellow region) but modest compared to Austria's own history. - The baseline fiscal consolidation is at the frontier and appears ambitious compared to other countries' experience and Austria's own history (75th percentile of the distribution). - The exercises reflect withdrawal of exceptional fiscal measures implemented during COVID and the increase in energy prices. - Growth and fiscal adjustment paths are consistent with reasonable multiplier estimates. ### Annex V — Authorities’ response to past Article IV policy recommendations (selected) - Fiscal Policy: - Recommendation: Implement targeted, non-distortionary measures to support households during the energy-price shock. - Action: Authorities used available fiscal room to cushion higher energy prices while maintaining price signals; half of the measures over 2022–2023 were broad-based. - Recommendation: Implement reforms to address rising expenditure burden related to aging. - Action: Gradual alignment of women’s standard pension age with men’s to 65 years starts in 2024. The 2021 pension reform reintroduced penalties for early retirement. A significant part of the 2024 fiscal equalization package is allocated to enhancing outpatient care and strengthening primary health care. - Financial Sector Policy: - Recommendation: Enhance monitoring and supervision of financial sector risks in the wake of Russia's war in Ukraine. - Action: Authorities are monitoring CESEE developments closely, including bank balance sheets with and without operations in Russia. - Recommendation: Calibrate systemic risk buffers; activate CCyB if warranted. - Action: Implemented phased-in increase of bank-specific O-SII and Systemic Risk buffers over 2023–24. Authorities and staff concur that a CCyB set at zero is appropriate under current cyclical conditions and are willing to consider activation if conditions change. - Recommendation: Consider additional real-estate-related macroprudential measures if vulnerabilities persist. - Action: Authorities are enhancing CRE monitoring; a CRE risk assessment is being undertaken in 2024. - Labor Market Policy: - Recommendation: Boost labor force participation, address mismatches, improve refugee integration. - Actions: - Increased funding for childcare to enhance women’s participation. - Increased bonus for working beyond standard pension age: pension credited with a bonus of 5.1 percent (up from 4.2 percent) for each year pension is deferred (up to a maximum of 3 years) starting in January 2024. - Government temporarily covered pension contributions for workers over 65 for the years 2024–25 up to a certain threshold. - Launched a new online wage comparison tool in March 2024; rolled out language and literacy programs; established a one-stop shop to facilitate migrant access to information. - Climate Policy: - Recommendation: Enhance energy security; accelerate transition away from fossil fuels. - Actions: - Austria maintains high levels of gas storage equivalent to meeting demand in 3–4 months of winter. - Legislative process initiated to reduce long lead times in green projects; specific funds designated for heating transition, e-mobility, and infrastructure financing. - Digital Transition: - Recommendation: Accelerate digital transition to boost productivity and growth. - Action: Implementing the 2023 National Strategic Roadmap for the Digital Decade of Austria, including extending internet to rural areas and improving digital citizen services. *Source: IMF staff estimates, projections, and country authorities’ responses as presented in the chapter.* ### Annex VI. 2019 FSAP Key Recommendations—Implementation ### Annex VI. 2019 FSAP Key Recommendations—Implementation ### Financial Sector Oversight - Review legislation to clarify and narrow the BMF’s role in oversight of the FMA and remove industry participation in its Supervisory Board. - Time Frame*: MT - Status: No change - Make the OeNB the chair of FMSB and increase its voting representation. - Time Frame*: NT - Status: No change - Strengthen the related-party risk framework and establish ex-ante approval for LSI significant investments in non-financial undertakings. - Time Frame*: NT - Status: The Austrian authorities (FMA/OeNB) reiterate that a change in EU legislation is a prerequisite for legislation change in Austria. - Phase-out the role of state commissioners in supervisory boards. - Time Frame*: MT - Status: The FMA and OeNB note that there are no plans to substitute the state commissioner. The FMA revised its internal processes to intensify the interactions with the supervisory boards of the credit institutions under its supervision. - Enhance internal guidelines for supervisory action based on qualitative factors. - Time Frame*: I - Status: The FMA internal SREP manual is being continuously updated. For 2024, the methodology has been fundamentally revised taking SSM developments into account and will consist of a core assessment with additional modules to be developed (also with regard to supervisory actions based on qualitative factors). Currently the new templates for the SREP assessment 2024 are being finalized. Further training and guidance are being provided. - Stress-test insurance segments / business lines with material future profitability and follow-up with appropriate actions, such as capital add-on. - Time Frame*: NT - Status: The 2023 stress test included the following topics: - Largest relevant risks: The explanation of risks that are currently considered to be the most significant for non-fulfillment of business objectives at the overall company level. - Inflation risk: The extent to which inflation assumptions are taken into account in the technical provisions and premium calculation. Furthermore, any effects of the current high inflation on insurance benefits are assessed. - Lapse risk: The possible effects of the lapse risk scenarios defined in the standard formula. - Real estate risk: A forecast of the market values of real estate classes in the portfolio was requested. - Stress Test 2023 results at a glance: - Market developments have been qualified as the biggest risks, with macroeconomic aspects such as inflation and the high interest-rate environment cited as relevant influencing factors. This is closely linked to cost risks and the development of future business models. Climate change is also seen as a major influencing factor. Attacks on corporate IT are occurring much more frequently today, and it is more complex to ward them off and protect increasingly digitalized business processes. - Almost all insurance companies use inflation assumptions in the life and health division to calculate the best estimate. - Health insurance: If an increase in all inflation rates of one percentage point p.a. is assumed, this leads to materially lower best estimate provisions in the model calculation for almost all health insurance companies. The reasons for the sharp decline in provisions will be analyzed and discussed in detail with the individual companies. - For most life and health insurers, the risk of a mass lapse event is currently the determining factor for the lapse risk when calculating the SCR using the standard formula. However, according to the feedback, no acute high liquidity risk is generally seen. - The short-term yield expectations for real estate surveyed provided a heterogeneous picture from which no clear view of the market's performance can be derived. - Additional measures: - FMA participates in the European insurance stress test 2024 which comprises a bottom-up capital and liquidity exercise. Selected undertakings will analyze the combined impact of market risk and insurance-specific shocks. Participating undertakings will share insights on their models and liability structures as regards to lines of business, duration, and lapse features. - FMA is evaluating a national roll-out of stress tests for financial conglomerates. - Review resources for the maintenance of Solvency II, insurance market conduct supervision and potential recovery and resolution framework, and AML supervision for all entities, including VASPs. - Time Frame*: NT - Status: In 2022, the FMA hired 4 additional full-time employees. The FMA regularly reviews human resources and emerging needs. VASP experts assigned within AML receive regular on-the-job training to fulfill new responsibilities. There are experts on VASPs within the AML division who keep themselves up-to-date as well as publish articles and give seminars. - Revise AML/CFT risk scoring reflecting cross-border risks, increase onsite inspections of low-risk banks, branches and subsidiaries and improve non-EU/EEA information exchange. - Time Frame*: NT - Status: - The FMA's risk scoring toolkit includes quantitative and qualitative data to properly capture risks. - (i) Qualitative data include audit reports, results from previous on-site inspections and off-site measures as well as other perceptions (e.g., media reports, information provided by the prudential team). Cross border risk monitoring includes qualitative data and the number of branches and subsidiaries in every country, which serves for in the risk score in each country. - (ii) The FMA has increased the frequency of its onsite supervision for low-risk institutions (considering overall risks) by Q4/2020 in order to raise awareness of the entities under supervision on AML, asses the implemented AML/CFT frameworks, and check the data submitted for the FMA's AML/CFT's risk-assessment tool. The evaluation concentrated on transactions carried out by the customers of typically small and regional banks. - (iii) The FMA seeks to ensure the effective implementation of sound risk management practices and high quality of group-wide policies. In particular, the FMA has increased OSIs dealing with group-wide policies both within the parent institution and in foreign branches and subsidiaries to the effectiveness of the measures implemented. Due to Covid19, some of the measures had to be modified. At the start of the Covid-19 crisis risk-based onsite inspections extended also to insurance companies, where AML/CFT risk is deemed minor. Routine inspections are set to resume, albeit staffed with remote and/or hybrid teams. - (iv) Non-EU/non-EA exchange of information: improvement of cross-border information exchange is part of the ongoing supervision. The FMA has the explicit legal basis to share information. MoUs help practical modalities. FMA is also conducting routine reviews of group-wide strategies during its on-site inspections. The FMA has updated its MoU for insurance supervision with Montenegro in 2022; the UA Emirates is seeking to engage the FMA on a MoU, where a symmetrical involvement for EBA will be needed for an equivalence assessment. - For some non-EEA countries (majority of our bank’s subsidiaries) an AML-related EBA equivalence assessment has not been conducted yet. FMA has therefore started an initiative with EBA to prioritize non-EEA countries’ equivalence assessments. - Monitor the effectiveness of the FMSB’s sustainable lending guidance and prepare regulatory actions, such as binding macroprudential limits, if the risk profile does not improve. - Time Frame*: NT - Status: Binding measures to contain systemic risks from residential real estate funding (limits on DSTI, LTV and maturities) were introduced in 2022. At the beginning of 2023 these measures have been adapted (exemptions of bridge funding, absolute minimum exemption buckets). Following the introduction of these legally binding measures, lending standards have markedly improved. - Enhance oversight of inward spillover risks from the inverse ownership structure of the Raiffeisen sector. - Time Frame*: NT - Status: - An Austrian sector-wide Raiffeisen-IPS-System was established by end of May 2021. Almost the entire Raiffeisen sector joined this new IPS (only 2 small Raiffeisen primary banks are not part of the IPS). The previous Bundes-IPS and the previous six Landes-IPSes were dissolved. - The reason for changing the system in favor of one overarching IPS was the possibility to establish an own deposit guarantee and investor compensation scheme (DGS) like the one the Savings banks already have. - Since this new Raiffeisen-IPS consists of significant institutions (SI) and less significant institutions (LSI), ECB and FMA were responsible for the approvals according to Art. 113 para 7 and Art. 49 para 3 CRR. - IPS-based DGS (ÖRS): This new according to Art. 113 para 7 CRR approved Raiffeisen-IPS was then recognized as DGS by FMA. The Österreichische Raiffeisen-Sicherungseinrichtung (ÖRS) is the responsible entity of the Raiffeisen-IPS for operating the DGS. - Supervisory activities: FMA (and ECB regarding SIs) is (are) constantly monitoring the specific risks of the Raiffeisen sector with a specific focus on the supervision of the IPS. Since the sector has now established this overarching IPS with nearly all Raiffeisen institutions being its members, FMA/OeNB and the ECB are in the position to receive a more comprehensive sector wide view; an enhanced monitoring of the specific risks within the Raiffeisen sector is therefore possible. - There are regular meetings between FMA/OeNB staff with the auditors, the management bodies of the credit institutions within the Raiffeisen sectors, and the Raiffeisen Deposit Guarantee Scheme (ÖRS). A number of conditions were imposed as part of the approval process, including in particular many reporting obligations such as the regular submission of risk reports and documents from risk council meetings or ad hoc reporting obligations, e.g., in the event of material financial deterioration of IPS members. The authorities also regularly refine these supervisory activities as regards the specific risks of the Raiffeisen sector. Furthermore, the spillover risks are also investigated regularly during the resolution planning cycle. - A Raiffeisen IPS simulation tool has been activated. It allows to simulate the failing of individual Raiffeisen banks and to assess the Raiffeisen IPS capacity to recover such fallouts. In 2024, OeNB is undertaking a systemic risk analysis of the Austrian IPSs (Raiffeisen IPS and Sparkassen IPS) to assess the systemic impact of a potential mitigating IPS measure to address the failure of one or more member bank(s) on all other participating banks. This systemic risk analysis allows a consistent treatment of Raiffeisen IPS within OeNB’s systemic risk assessments (e.g., for the purpose of calibrating macroprudential buffers). - In 2023, the FMA has developed a comprehensive mitigation framework which aims to safeguard any future FOLF and resolution of a LSI RLB from any potential follow-up failures of Raiffeisen primary institutions due to the existing financial contagion channels from the RLBs to the primary institutions. The framework consists of a three-level approach where, under ongoing monitoring and in step with a potential future reduction in overall IPS financial capacity, additional mitigation measures are developed, operationalized, and implemented, in time before a potential resolution without sufficient IPS capacity. The FMA is currently in the final rounds of negotiations with the LSI RLBs with the objective to coordinate the framework conclusively with the SRB and then reach a first implementation of this framework for the 2024 resolution planning cycle. ### Financial Stability Analysis - Close data gaps, including in the real estate and NFC sectors, and improve coverage and granularity of CESEE data. - Time Frame*: MT - Status: The OeNB implemented the following: - (i) Data gaps in the real estate and NFC sectors were tackled for residential real estate; the implementation is ongoing for commercial real estate. - (ii) Data gaps with regard to CESEE are addressed by using risk-based parameters. The OeNB's “Financial Stability Cube” has been refined to include more granular risk parameter data. The first data submission is scheduled for reference date September 30, 2024. - Enhance stress testing framework to consider second round effects, dynamic balance sheets, and contagion/spillover effects. - Time Frame*: MT - Status: (OeNB) Implementation is ongoing with a focus on incorporating a dynamic balance sheet perspective. In a first step, a framework for projecting Austrian aggregate and bank-specific credit growth, subject to bank-specific growth and deleveraging constraints, was established and implemented in the OeNB’s stress test tool ARNIE. The model will be refined going forward. - Ensure resources and organizational structure are adequate to meet stress testing framework objectives. - Time Frame*: NT - Status: Implemented. One new temporary position (duration 2 years) was created, and another temporary position (duration 2 years) was redirected to support further development. ### Financial Crisis Management and Safety Nets - Explicitly provide for purchase and assumption transactions in the bankruptcy regime. - Time Frame*: NT - Status: No change - Seek legislation for standing authority to implement stabilization measures, support funding in resolution, and explore mechanisms for prepositioning BMF to support borrowing by DGSs. - Time Frame*: I - Status: No change - Consider cross-border spillovers in national crisis contingency plans. - Time Frame*: NT - Status: A crisis cooperation manual between OeNB and FMA was concluded in Q2 2020 and updated in 2023. Cross-border spillovers are dealt with in the established procedures of the Resolution Colleges. - Enhance insurance crisis preparedness, introducing pre-emptive recovery planning for eligible insurers. - Time Frame*: NT - Status: The FMA contacted the MoF (Ministry of Finance) in connection with the modernization of FMA's supervisory instruments. Discussions with the MoF have advanced at the expert level and resulted in legislative drafts. This draft includes the establishment of an Insurance Guarantee Scheme with the capacity to take over insurance contracts to ensure the continuation of insurance contracts, funding, and pre-emptive recovery planning. Further work by MoF was postponed due to the IRRD proposal and negotiations at the EU level. The authorities expect the formal adoption of the IRRD at the EU level within 2024, which has to be implemented within 24 months (according to the current draft). A fully fledged recovery and resolution regime will be implemented by transposing the IRRD. *I-“Immediate” is within one year; “NT-near-term” is 1–3 years; “MT-medium-term” is 3–5 years. FMA is the Financial Market Authority; the OeNB is the National Bank of Austria; the BMF is the Ministry of Finance.* *Source: Annex VI. 2019 FSAP Key Recommendations—Implementation (1autea2024001)* ### Annex VII. Data Issues Annex ### Annex VII. Data Issues Annex ### Data Adequacy Assessment - Overall data adequacy assessment: "The data provided to the Fund is adequate for surveillance." - Questionnaire and heatmap basis: "The overall questionnaire assessment and the assessments for individual sectors reported in the heatmap are based on a standardized questionnaire and scoring system (see IMF Review of the Framework for Data Adequacy Assessment for Surveillance, January 2024, Appendix I)." - Austria adheres to the Special Data Dissemination Standard (SDDS) Plus since January 2017 and publishes on its National Summary Data Page. - SDDS Plus Annual Observance Report: available on the Dissemination Standards Bulletin Board. - Rationale for staff assessment: "Data provision is adequate for surveillance purposes." ### Detailed Sectoral Notes and Data Quality Characteristics - Figure/heatmap indicators (as presented): - Sectors covered: National Accounts; Prices; Government Finance Statistics; External Sector Statistics; Monetary and Financial Statistics; Inter-sectoral Consistency. - Data Quality Characteristics headings referenced: Coverage; Consistency; Frequency and Timeliness; Granularity; Median Rating; Data Adequacy Assessment Rating; Questionnaire Results; Assessment. - Granularity notes: - For Government Finance Statistics: top cell = granularity of reported government operations data; bottom cell = granularity of public debt statistics. - For Monetary and Financial Statistics: top cell = granularity of reported Monetary and Financial Statistics data; bottom cell = granularity of the Financial Soundness indicators. - When a questionnaire does not include a question on a specific dimension, the corresponding cell is blank. ### Data Gaps, Changes, and Capacity Development - Use of different data or estimates in Article IV: "Not applicable." - Other data gaps: - Development of statistics on the commercial real estate (CRE) sector, including price and rent indices, and indicators useful for surveillance of risks to the financial sector from CRE (including debt-service coverage ratio) would be useful. - Changes since last Article IV (2022): "No data weaknesses were identified in the 2022 Article IV Staff Report." - Corrective actions and capacity development priorities: "Not applicable." ### Table of Common Indicators Required for Surveillance (high-level timing and frequency notes) - As of March 13, 2024; entries include Date of Latest Observation and Date Received for multiple indicators. - Frequency and timeliness legend: - "D" = daily; - "W" = weekly or with a lag of no more than one week after the reference date; - "M" = monthly or with lag of no more than one month after the reference date; - "Q" = quarterly or with lag of no more than one quarter after the reference date; - "A" = annual; - "I" = irregular; - "NA" = not available. - Data items listed (with associated notes where present): - Exchange Rates. - International Reserve Assets and Reserve Liabilities of the Monetary Authorities (includes reserve assets pledged or otherwise encumbered, as well as net derivative positions). - Reserve/Base Money. - Broad Money. - Central Bank Balance Sheet (including currency and maturity composition). - Consolidated Balance Sheet of the Banking System. - Interest Rates (both market-based and officially determined, including discount rates, money market rates, rates on treasury bills, notes and bonds). - Consumer Price Index. - Revenue, Expenditure, Balance and Composition of Financing ‒ General Government (foreign, domestic bank, and domestic nonbank financing). - Revenue, Expenditure, Balance and Composition of Financing ‒ Central Government (the general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments). - International Investment Position. - Stocks of Central Government and Central Government-Guaranteed Debt. - External Current Account Balance. - Exports and Imports of Goods and Services. - GDP/GNP. - Gross External Debt. - Note on recommended frequencies: Recommended frequency and timeliness under the e-GDDS and required frequency under SDDS and SDDS Plus are referenced; flexibility options or transition plans under SDDS or SDDS Plus are not reflected. ### Fund Relations and Mission Information - Mission: February 16–March 1, 2024. - Staff team: Mr. Fletcher (head), Mr. Mohommad, Ms. Pinat, and Ms. Wang (all EUR). - Country interlocutors included: Minister of Finance Brunner; Central Bank Governor Holzmann; Minister of Climate Gewessler; Members of Parliament; officials from the Ministry of Finance, Ministry of Labor, Ministry of Climate, Financial Market Authority, and energy regulator; major banks; trade unions; think tanks; and other private-sector representatives. - Consultation cycle: Austria is on a 12-month consultation cycle. Previous Article IV discussions: May 30–June 13, 2022. - Membership Status: Joined August 27, 1948; Article VIII. ### IMF Financial Position and Accounts (exact figures) - General Resources Account: - Quota: 3,932.00 SDR Million Percent of Quota 100.00 - Fund holdings of currency: 2,863.78 SDR Million 72.83 - Reserve position: 1068.24 SDR Million 27.17 - Lending to the Fund: (blank) - New Arrangements to Borrow: 3.67 - SDR Department: - Net cumulative allocation: 5,504.96 SDR Million Percent of Allocation 100.00 - Holdings: 5,746.45 SDR Million 104.39 - Outstanding Purchases and Loans: None - Latest Financial Commitments: None - Overdue Obligations and Projected Payments to Fund (SDR Million; based on existing use of resources and present holdings of SDRs): - Charges/Interest forthcoming each year 2024–2028: 0.07 (each year) - Total forthcoming each year 2024–2028: 0.07 (each year) ### Exchange Rate Arrangements - Currency: euro. - Exchange rate arrangement of the euro area: free floating. - Austria participates in a currency union (EMU) with 19 other members of the EU and has no separate legal tender. - Austria has accepted the obligations under Article VIII, Section 2(a), 3, and 4 of the IMF’s Articles of Agreement and maintains an exchange system free of multiple currency practices and restrictions on current international transactions, except restrictions notified under decision No. 144 (52/51) resulting from UN Security Council Resolutions and EU Council Regulations. ### FSAP, Technical Assistance, and Resident Representation - FSAP mission: May and September 2019. FSSA report referenced. - Technical Assistance: None. - Resident Representative Post: None. ### Statement by Christian Just, Alternate Executive Director for Austria (May 3, 2024) — Key points - Authorities broadly concur with key issues and policy recommendations from the 2024 Article IV consultations. - Economic developments: - Recovery relatively strong until Q1 2023; sectoral downswings became broad based thereafter. - 2024 started on a weak footing; conditions for gradual recovery are in place, including a still resilient labor market. - In March, dependent employment "dropped slightly compared to 12 months ago" and unemployment "continued to be on the rise, though still below the pre-pandemic level." - Company profitability is low, possibly reacting to a strong wage round; this has not yet resulted in stronger private consumption. - Moderate pass-through of relatively high domestic inflation to goods export prices contributed to a fairly strong performance of goods exports in 2023. - Inflation is going down, aided by a restrictive monetary stance and weak domestic demand. - Expected economic upswing could take place later than staff expected. - Energy dependence and gas: - Natural gas consumption: 89 TWH in 2020; 75 TWH in 2023. - In early 2024, gas consumption declined further, also on the back of mild weather conditions. - Gas storage capacities are "way higher than annual demand." - Alternative routes of gas have been contracted for the coming years. - Share of electricity produced from renewables is "approaching 90 percent." - Inflation developments: - HICP inflation fell from 11.6 percent in January 2023 to 5.7 percent in December 2023. - HICP inflation at 4.2 percent in March (the lowest level since the beginning of 2022 but still the second highest in the euro area). - Current inflation forecast: HICP inflation rate will fall to an annual average of "slightly more than 3 ½ in 2024," more than halve compared to the previous year and somewhat lower than staff’s projections. - Inflation in 2024 will continue to be more than "1 pp higher than the euro area average" due to strong nominal wage increases. - The inflation differential "represents a major challenge for the price competitiveness of domestic companies." - Economic policy: - In response to recession, authorities are phasing out energy subsidies later than planned and recently adopted a housing package to foster the construction sector. - Construction sector faces high insolvencies and shrinking employment, albeit from a high level. - Measures to advance the green transition were stepped up. - Private consumption bolstered by substantial increases of real incomes; weak investment reflects subdued international demand, limiting public sector possibilities to stabilize the economy. - Fiscal policy: - 2023 public sector deficit: -2.7 percent of GDP. - Public debt declined to 77.8 percent. - 2024 projections: public deficit "slightly up to 2.9 percent in 2024" while the debt ratio is estimated to decline to 77.5 percent. - Authorities concur with staff that building up fiscal buffers and lowering the debt ratio will be essential. - Authorities note tax burden is high and suggest the focus should be on the expenditure side rather than on property taxes. - Financial sector: - 2023 was "a very profitable year for the financial sector." - Authorities concur that parts of the profits should be used to increase capital buffers. *Source: Annex VII. Data Issues Annex (1autea2024001) — Austria: Staff Report for the 2024 Article IV Consultation — Information Annex.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1autea2024001.pdf_