## 1. Expenditure Contributions to GDP Growth

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### Introduction
- Austria’s real GDP declined by 2.5 percent between end-2022 and end-2024, with growth also underperforming the rest of the euro area.
- The downturn was especially large in manufacturing and construction, with weak investment and inventory accumulation identified as key channels.

### Expenditure-side drivers
- Overall pattern
  - Most major expenditure categories contributed to the downturn; inventories and investment recorded especially large declines.
  - Government consumption was the lone positive contributor on the domestic side, with a similar contribution as during the pre-pandemic period.
  - Exports declined substantially, but imports declined even more, so net exports were a large positive contributor to GDP growth during 2023 (and relative to historical norms).
- Private consumption and household saving
  - Elevated household savings rates kept private consumption weak despite a recovery in real wages during 2024.
  - The deviation of the savings rate from its long-run average widened more noticeably in late-2024 in Austria relative to the euro area.
  - OeNB analysis suggests about one-third to one-half of the increase in the savings rate between mid-2022 and mid-2024 is driven by higher interest rates on deposits, a smaller share by transfer payments to cushion the effect of high energy prices, and about one-third of the increase due to unexplained factors (precautionary savings, uncertainty, past declines in real wealth).
- Investment
  - Real investment fell by 6.5 percent between 2024 and 2022.
  - The 6.5 percent decline reflects almost entirely a drop in construction investment; machinery and equipment and other investment have remained flat in real terms.
  - In the five years prior to the pandemic, investment contributed 0.9 percentage points to growth on average; since 2022 the contribution of investment has been negative and is the largest drag on growth after inventory dynamics.
  - Sequentially, real investment fell nearly each quarter from 2022Q4 but appears to have bottomed out over the most recent two quarters, with construction activity leveling off and some uptick in machinery and equipment investment.
- Inventories
  - Adverse inventory dynamics exerted a large drag on growth during 2023-24; the drop in inventories more than accounted for the entire decline in Austrian GDP during 2023-24.
  - The large inventory drawdown follows a large positive contribution from inventory accumulation in 2022 (partly due to build-up of strategic gas reserves and post-pandemic easing of supply constraints).
  - Large inventory drawdowns are unlikely to be sustainable and indicate scope for rebound once confidence recovers (or could be reallocated across expenditure components in subsequent GDP revisions).
- External demand and tourism
  - The contribution of net exports to growth rose sharply after the pandemic, surging to 1.2 pp of GDP since 2022 (compared to an average contribution of 0.1 pp between 2015Q1 and 2019Q4).
  - Goods: real goods exports rebounded after the pandemic but reversed since 2023; real goods exports in 2024Q4 declined to 9 percent of their 2022 level, driven mainly by falling exports of intermediate goods to Europe (intermediate goods account for approximately half of Austria's goods exports).
  - Despite the decline in goods exports, net exports of goods continued to contribute positively to GDP during 2023 and most of 2024 because goods imports declined even faster.
  - Services/tourism:
    - Travel exports represent nearly 30 percent of Austria’s total nominal services exports pre-pandemic.
    - Tourist arrivals have rebounded, but real receipts per arrival for travel services exports remain 13 percent below their pre-pandemic level.
    - Counterfactuals indicate that if real travel services receipts per tourist arrival had returned to 2019 levels, real GDP growth would have been 0.3 percentage points higher in 2023 and approximately 0.2 percentage points higher in 2024.
    - Considering indirect effects of tourism on GDP, the impact could be 1/3 larger. The direct impact of tourism on GDP was equal to 4 percent of GDP in 2023; WIFO estimates its indirect impact amounts to an additional 2.2 percent of GDP.

### Production-side (GVA) drivers
- Broad-based slowdown
  - Excluding agriculture and public administration, all other sectors performed worse in Austria than in the rest of the euro area.
  - Three sectors—manufacturing; trade, travel, accommodation, and food; and construction and real estate—account for about half of Austrian GVA and explain three quarters of Austria’s growth gap relative to the rest of the euro area over 2023-24, with manufacturing being the largest contributor.
  - Employment declines were concentrated in manufacturing and construction.
- Manufacturing specifics
  - Part of the manufacturing downturn may reflect a reversal of unusually high production during 2019-22: Austria’s manufacturing GVA grew at an annualized rate of 4.5 percent from end-2019 to end-2022, compared to 0.6 percent in the rest of the euro area.
  - The reversal of unusually high GVA does not appear to explain the weak relative performance in construction or trade, travel, accommodation, and food; those sectors also underperformed the rest of the euro area during 2019-22.

### Key quantitative facts (preserved exactly as in source)
- Real GDP declined by 2.5 percent between end-2022 and end-2024.
- Real investment fell by 6.5 percent between 2024 and 2022.
- Pre-pandemic (five years prior) average investment contribution to growth: 0.9 percentage points.
- Net exports contribution since 2022: 1.2 pp of GDP; pre-pandemic average (2015Q1–2019Q4): 0.1 pp.
- Real goods exports in 2024Q4 declined to 9 percent of their 2022 level.
- Intermediate goods account for approximately half of Austria's goods exports.
- Travel exports represent nearly 30 percent of Austria’s total nominal services exports pre-pandemic.
- Real receipts per arrival for travel services exports remain 13 percent below their pre-pandemic level.
- Counterfactual GDP impacts: 0.3 percentage points higher in 2023 and approximately 0.2 percentage points higher in 2024 if travel receipts per arrival returned to 2019 levels.
- Tourism direct impact on GDP in 2023: 4 percent of GDP; indirect impact (WIFO): 2.2 percent of GDP.
- Austria’s manufacturing GVA annualized growth from end-2019 to end-2022: 4.5 percent; rest of euro area: 0.6 percent.

### Manufacturing: scope and drivers
- Manufacturing GVA decline mirrored in industrial production (IP) data; IP used to assess drivers given limited GVA detail for 2024.
- Manufacturing weight and contribution
  - Manufacturing share of total GVA in Austria: 18 percent in 2023.
  - Manufacturing share of total GVA in the rest of the euro area ex. Ireland: 14 percent.
  - If the rest of the euro area had Austria’s manufacturing share of GVA, its annualized growth between end-2022 and end-2024 would have been only 0.04 percentage points lower.
- Sectoral contributions to differences in GDP growth between AUT and EA20 ex AUT, IRL (2022Q4 to 2024Q4) (Differences in sectoral growth rates times the sectoral weight in GDP):
  - Manufacturing: 0.93 | 6.4 | 0.20
  - Trade, travel, accomodation, and food: 0.62 | 5.5 | 0.20
  - Construction and real estate activities: 0.31 | 2.9 | 0.06
  - Other (including differences in sectoral weights): 0.62 | 5.2 | 0.54
  - Total: 2.5 | 100.0 | 1.0
- Breadth of the decline
  - All sub-sectors of manufacturing declined during 2023-24, except chemicals and pharmaceuticals.
  - By economic category, both intermediate goods and investment goods production fell sharply.
  - Intermediate goods account for 40 percent share in IP; investment goods account for 8 percent of IP.
  - By energy intensity:
    - Non-energy-intensive sectors (accounting for three quarters of industrial production) fell somewhat more than energy-intensive sectors and contributed more to the manufacturing IP decline.
    - Energy-intensive production decline started earlier (early-2022) following the energy price shock.
  - Manufacturing IP decline is broad-based across sub-sectors.
- Capacity utilization and employment
  - Capacity utilization lower in most manufacturing industries except pharmaceuticals, paper, and motor vehicles.
  - In most manufacturing sectors, employment has declined or stayed relatively flat.
- Interpretation
  - The broad-based nature of the manufacturing decline suggests economy-wide drivers: weak domestic and external demand, and higher interest rates depressing investment.
  - Note contrast: in Germany manufacturing GVA performed better than manufacturing IP.

### Construction and real estate: trends and housing linkages
- Decline mainly driven by construction sector; real estate activities value added stagnated since the start of the contraction.
- Timing and links to housing market
  - Construction sector value added decline since 2022Q4 may relate to housing market cooling observed since mid-2022.
  - Austrian real house prices showed a more rapid cooling and larger decline in construction GVA than in the euro area.
  - ECB assessment: Austrian house prices were more overvalued than in the euro area by about 8 percentage points on average in 2021.
  - Historical stronger house price growth in Austria produced stronger supply response (proxied by building permits) which subsequently fell sharply as house prices fell.
  - Recent quarters indicate housing market may be recovering: real house prices appear to have bottomed out and building permits leveled off late in 2024.

### Productivity versus hours worked
- Overall pattern
  - GDP decline since 2022Q4 initially accounted for by falling productivity (output per hour worked) while aggregate hours worked increased through most of 2023.
  - Hours worked then fell during most of 2024 before rebounding at end-2024 while productivity remained at a low level.
  - Lower hourly productivity accounts for most of the decline in GDP, with the decline concentrated in construction and manufacturing.
- Causes and correlates of weak productivity growth
  - Labor hoarding: weak demand in manufacturing and construction may have led firms to retain labor, reducing productivity.
    - Survey-based Labor Hoarding Index: percent of managers expecting their firms' output to decrease but employment to remain stable or increase (Index, 2019M1 = 100, seasonally adjusted, 6-month moving average); labor hoarding in industry remains a bit above pre-COVID levels though below the 2022 peak; it continued to rise in the building sector.
  - Sharp decline in investment:
    - Only 15 out of 71 NACE sectors recorded stronger real investment growth in 2022-23 than during the 5 years prior to the pandemic.
    - For most sectors real investment fell sharply, contributing to lower capital-labor ratios and hence lower productivity.
  - Increase in share of part-time workers:
    - Notable increase in the share of part-time workers in total employment across sectors (Change in Share of Part-Time Workers in Total Employment; Percentage points; 2019Q4 - 2024Q4).
    - Potential compositional effects on productivity, though evidence on impact is scarce for Austria.

### Conclusion: synthesis of main drivers and characteristics
- Downturn especially large in manufacturing and construction as higher interest rates and weak confidence sharply depressed investment and inventory accumulation.
- Manufacturing downturn is broad-based across sub-sectors, complicating identification of specific causes; may partly reflect a reversal of unusually high manufacturing growth during 2019-22.
- Larger drop in construction activity than in the rest of the euro area may be partly due to somewhat higher house price overvaluation leading up to the decline.
- Other contributors to growth underperformance:
  - Higher household saving rates due to weak confidence amid the continued downturn.
  - Reduction in real spending per tourist arrival.
- GDP decline reflected in a large drop in productivity in manufacturing and construction, potentially driven by lower investment and labor hoarding amid weak demand.

### Austria benefits from strong institutions, but some indicators highlight inefficiencies
- Public sector wage and composition
  - The estimated wage premium in 2022 was 13.8 percent.
  - In 2022, the average hourly wage in the public sector was 23.5 percent above that of the private sector.
  - Public sector has 35 percent of employees with higher education versus 23 percent in the private sector.
- Regression results (OLS on average hourly wage, Austria EU-SILC microdata)
  - Sector (public==1): 0.138*** (0.0307)
  - Gender (male==1): 0.101*** (0.0182)
  - Age: 0.0460*** (0.00518)
  - Age^2: -0.000438*** (0.0000621)
  - Full-time work: 0.0271* (0.0149)
  - Urban: -0.0412** (0.0163)
  - Vocational education: 0.200*** (0.0271)
  - Secondary education: 0.251*** (0.0286)
  - Tertiary education: 0.347*** (0.0315)
  - Constant: 1.548*** (0.125)
  - Observations: 3,665; R-squared: 0.374
- Governance and fiscal structure issues
  - Fragmentation of responsibilities across government levels and unclear competencies contribute to duplication and a rising public wage bill.
  - Competence ascertainment procedures involve approximately 50 constitutional laws and over 500 laws with constitutional requirements.
  - Fiscal equalization process described as fairly complicated and opaque.
- Policy recommendations to reduce public wage bill and improve efficiency
  - Restrain wage increases and moderate annual public sector wage increases over time, while allowing targeted higher pay for hard-to-fill roles.
  - Enhance efficiency of multi-level government by eliminating redundancies, strengthening intergovernmental coordination, streamlining regulatory frameworks, addressing fiscal equalization backlogs, and improving transparency and accountability.
  - Consider non-replacement of retiring civil servants in positions suited to automation.

### Startup financing, asset pools, and policy measures to boost VC
- Asset pools and institutional allocations (end-2024)
  - Euro-area bank deposits of households and non-financial corporates: €15 trillion.
  - Insurance Assets: 8,835,665 (millions of euros)
  - Pension Assets: 3,585,607 (millions of euros)
  - Total Assets: 12,421,272 (millions of euros)
  - US allocation to PE/VC (percent of assets): Insurers 3.0; Pensions 7.0
  - European allocation to PE/VC (percent of assets): Insurers 1.9; Pensions 3.7
  - To match US allocation (ppt): Insurers 1.1; Pensions 3.3
  - Additional funds available (millions of euros): Insurers 97,192; Pensions 118,325; Total 215,517
- Potential financing benefit from aligning European allocations to US levels
  - If European allocations matched US allocations to PE/VC, they could free up about €215 billion in funds for private equity/VC (euro area overall).
  - Allocating these additional funds among euro-area member states in proportion to their GDP implies about €6.9 billion in additional equity financing for Austrian firms (Austria’s 2024 weight in euro area GDP: about 3.2 percent).
  - Comparison: VC investments of €1.6 bn in Austria over 10 years through end-2023.
- Funds-of-Funds (FOF) as a channel to increase institutional VC investment
  - Benefits: scaling of investment, targeting middle-stage financing, expertise in VC allocation, liquidity management, and risk diversification.
  - Example scaling: institutional investor with €1 billion assets investing 10 percent → €100 million could be allocated to an FOF which distributes to VC funds.
  - Pan-European and public initiatives (examples): Germany’s “Wachstumsfonds Deutschland”; European Tech Champions Initiative (EIF-managed).
  - Cautions: public initiatives must be well-designed to limit fiscal risks and catalyze private finance; pan-European FOFs can realize economies of scale for smaller countries.
- Exit options and market structure
  - IPO and M&A activity in Austria and the broader euro area is somewhat limited as a percent of GDP relative to the U.S. and U.K.
  - IPO activity in Austria is very small in absolute terms; scale matters for attracting investor interest and liquidity.
  - Suggested reform: harmonize securities market regulation and supervision across the euro area to make securities and IPO markets more efficient and leverage economies of scale, including by fostering consolidation of exchanges.
- Regulatory and tax environment
  - A well-designed common 28th corporate regime (European Commission proposal announced January 2025) could simplify the regulatory environment for startups and other firms by offering an optional EU-wide legal framework covering corporate, insolvency, labor, and/or tax law.
  - Austrian tax issues noted:
    - Private individuals in Austria cannot carry forward capital losses under Austria’s personal income tax; they can only offset capital losses against gains realized within the same calendar year.
    - Individuals can carry forward capital losses by setting up a company for investment purposes, but this adds complexity.
  - Policy recommendation: remove distortions (e.g., regulatory and tax policies) that may distort investment decisions and hinder investment in startups rather than forcing investments into certain sectors.
- Innovation ecosystem and data
  - Promote collaboration between academic institutions and the private sector; foster innovation “hubs” (examples: TU Wien, TU Graz, ISTA).
  - Disseminate information on business formation, the revised insolvency framework, debt discharge, fresh start, IPO processes, and other startup-relevant information to reduce risk aversion.
  - Improve benchmarks and data on VC returns, liquidity, volatility, and correlations to reduce uncertainty and attract institutional investors; VC benchmarks could be developed with private sector consultation and public support.

*Source: IMF staff chapter “Drivers of the Recent Recession in Austria,” June 9, 2025.*

### 1. Expenditure Contributions to GDP Growth ___________________________________________ 4

### 1. Expenditure Contributions to GDP Growth

### Introduction
- Austria’s real GDP declined by 2.5 percent between end-2022 and end-2024, with growth also underperforming the rest of the euro area.
- The downturn was especially large in manufacturing and construction, with weak investment and inventory accumulation identified as key channels.

### Expenditure-side drivers
- Overall pattern
  - Most major expenditure categories contributed to the downturn; inventories and investment recorded especially large declines.
  - Government consumption was the lone positive contributor on the domestic side, with a similar contribution as during the pre-pandemic period.
  - Exports declined substantially, but imports declined even more, so net exports were a large positive contributor to GDP growth during 2023 (and relative to historical norms).

- Private consumption and household saving
  - Elevated household savings rates kept private consumption weak despite a recovery in real wages during 2024.
  - The deviation of the savings rate from its long-run average widened more noticeably in late-2024 in Austria relative to the euro area.
  - OeNB analysis suggests about one-third to one-half of the increase in the savings rate between mid-2022 and mid-2024 is driven by higher interest rates on deposits, a smaller share by transfer payments to cushion the effect of high energy prices, and about one-third of the increase due to unexplained factors (precautionary savings, uncertainty, past declines in real wealth).

- Investment
  - Real investment fell by 6.5 percent between 2024 and 2022.
  - The 6.5 percent decline reflects almost entirely a drop in construction investment; machinery and equipment and other investment have remained flat in real terms.
  - In the five years prior to the pandemic, investment contributed 0.9 percentage points to growth on average; since 2022 the contribution of investment has been negative and is the largest drag on growth after inventory dynamics.
  - Sequentially, real investment fell nearly each quarter from 2022Q4 but appears to have bottomed out over the most recent two quarters, with construction activity leveling off and some uptick in machinery and equipment investment.

- Inventories
  - Adverse inventory dynamics exerted a large drag on growth during 2023-24; the drop in inventories more than accounted for the entire decline in Austrian GDP during 2023-24.
  - The large inventory drawdown follows a large positive contribution from inventory accumulation in 2022 (partly due to build-up of strategic gas reserves and post-pandemic easing of supply constraints).
  - Large inventory drawdowns are unlikely to be sustainable and indicate scope for rebound once confidence recovers (or could be reallocated across expenditure components in subsequent GDP revisions).

- External demand and tourism
  - The contribution of net exports to growth rose sharply after the pandemic, surging to 1.2 pp of GDP since 2022 (compared to an average contribution of 0.1 pp between 2015Q1 and 2019Q4).
  - Goods: real goods exports rebounded after the pandemic but reversed since 2023; real goods exports in 2024Q4 declined to 9 percent of their 2022 level, driven mainly by falling exports of intermediate goods to Europe (intermediate goods account for approximately half of Austria's goods exports).
  - Despite the decline in goods exports, net exports of goods continued to contribute positively to GDP during 2023 and most of 2024 because goods imports declined even faster.
  - Services/tourism: travel exports represent nearly 30 percent of Austria’s total nominal services exports pre-pandemic.
    - Tourist arrivals have rebounded, but real receipts per arrival for travel services exports remain 13 percent below their pre-pandemic level.
    - Counterfactuals indicate that if real travel services receipts per tourist arrival had returned to 2019 levels, real GDP growth would have been 0.3 percentage points higher in 2023 and approximately 0.2 percentage points higher in 2024.
    - Considering indirect effects of tourism on GDP, the impact could be 1/3 larger. The direct impact of tourism on GDP was equal to 4 percent of GDP in 2023; WIFO estimates its indirect impact amounts to an additional 2.2 percent of GDP.

### Production-side (GVA) drivers
- Broad-based slowdown
  - Excluding agriculture and public administration, all other sectors performed worse in Austria than in the rest of the euro area.
  - Three sectors—manufacturing; trade, travel, accommodation, and food; and construction and real estate—account for about half of Austrian GVA and explain three quarters of Austria’s growth gap relative to the rest of the euro area over 2023-24, with manufacturing being the largest contributor.
  - Employment declines were concentrated in manufacturing and construction.

- Manufacturing specifics
  - Part of the manufacturing downturn may reflect a reversal of unusually high production during 2019-22: Austria’s manufacturing GVA grew at an annualized rate of 4.5 percent from end-2019 to end-2022, compared to 0.6 percent in the rest of the euro area.
  - The reversal of unusually high GVA does not appear to explain the weak relative performance in construction or trade, travel, accommodation, and food; those sectors also underperformed the rest of the euro area during 2019-22.

### Key quantitative facts (preserved exactly as in source)
- Real GDP declined by 2.5 percent between end-2022 and end-2024.
- Real investment fell by 6.5 percent between 2024 and 2022.
- Pre-pandemic (five years prior) average investment contribution to growth: 0.9 percentage points.
- Net exports contribution since 2022: 1.2 pp of GDP; pre-pandemic average (2015Q1–2019Q4): 0.1 pp.
- Real goods exports in 2024Q4 declined to 9 percent of their 2022 level.
- Intermediate goods account for approximately half of Austria's goods exports.
- Travel exports represent nearly 30 percent of Austria’s total nominal services exports pre-pandemic.
- Real receipts per arrival for travel services exports remain 13 percent below their pre-pandemic level.
- Counterfactual GDP impacts: 0.3 percentage points higher in 2023 and approximately 0.2 percentage points higher in 2024 if travel receipts per arrival returned to 2019 levels.
- Tourism direct impact on GDP in 2023: 4 percent of GDP; indirect impact (WIFO): 2.2 percent of GDP.
- Austria’s manufacturing GVA annualized growth from end-2019 to end-2022: 4.5 percent; rest of euro area: 0.6 percent.

*Source: IMF staff chapter “Drivers of the Recent Recession in Austria,” June 9, 2025.*

### 9.      The following sections look further into factors driving the downturn in

### 1autea2025002-print-pdf - 9.      The following sections look further into factors driving the downturn in

### Manufacturing: scope and drivers
- Manufacturing GVA decline mirrored in industrial production (IP) data; IP used to assess drivers given limited GVA detail for 2024.
- Manufacturing weight and contribution:
  - Manufacturing share of total GVA in Austria: 18 percent in 2023.
  - Manufacturing share of total GVA in the rest of the euro area ex. Ireland: 14 percent.
  - If the rest of the euro area had Austria’s manufacturing share of GVA, its annualized growth between end-2022 and end-2024 would have been only 0.04 percentage points lower.
- Sectoral contributions to differences in GDP growth between AUT and EA20 ex AUT, IRL (2022Q4 to 2024Q4) (Differences in sectoral growth rates times the sectoral weight in GDP):
  - Manufacturing: 0.93 | 6.4 | 0.20
  - Trade, travel, accomodation, and food: 0.62 | 5.5 | 0.20
  - Construction and real estate activities: 0.31 | 2.9 | 0.06
  - Other (including differences in sectoral weights): 0.62 | 5.2 | 0.54
  - Total: 2.5 | 100.0 | 1.0
- Breadth of the decline (Figure 5 findings):
  - All sub-sectors of manufacturing declined during 2023-24, except chemicals and pharmaceuticals.
  - By economic category, both intermediate goods and investment goods production fell sharply.
  - Intermediate goods account for 40 percent share in IP; investment goods account for 8 percent of IP.
  - By energy intensity:
    - Non-energy-intensive sectors (accounting for three quarters of industrial production) fell somewhat more than energy-intensive sectors and contributed more to the manufacturing IP decline.
    - Energy-intensive production decline started earlier (early-2022) following the energy price shock.
  - Manufacturing IP decline is broad-based across sub-sectors (text chart: sectoral IP contributions by subsector and by economic category).
- Capacity utilization and employment:
  - Capacity utilization lower in most manufacturing industries except pharmaceuticals, paper, and motor vehicles.
  - In most manufacturing sectors, employment has declined or stayed relatively flat.
- Interpretation:
  - The broad-based nature of the manufacturing decline suggests economy-wide drivers: weak domestic and external demand, and higher interest rates depressing investment.
  - Note contrast: in Germany manufacturing GVA performed better than manufacturing IP.

### Construction and real estate: trends and housing linkages
- Decline mainly driven by construction sector; real estate activities value added stagnated since the start of the contraction.
- Timing and links to housing market:
  - Construction sector value added decline since 2022Q4 may relate to housing market cooling observed since mid-2022.
  - Austrian real house prices showed a more rapid cooling and larger decline in construction GVA than in the euro area.
  - ECB assessment: Austrian house prices were more overvalued than in the euro area by about 8 percentage points on average in 2021.
  - Historical stronger house price growth in Austria produced stronger supply response (proxied by building permits) which subsequently fell sharply as house prices fell.
  - Recent quarters indicate housing market may be recovering: real house prices appear to have bottomed out and building permits leveled off late in 2024.
- Indicators referenced (Figure 6 panels):
  - Construction and Real Estate Sector Value Added (percent deviation from 2022Q4).
  - Real House Prices (Percent change, year-on-year).
  - Building Permits (Index, 2021=100, 3mma).
  - ECB House Price Overvaluation (Percent change).

### Productivity versus hours worked
- Overall pattern:
  - GDP decline since 2022Q4 initially accounted for by falling productivity (output per hour worked) while aggregate hours worked increased through most of 2023.
  - Hours worked then fell during most of 2024 before rebounding at end-2024 while productivity remained at a low level.
  - Lower hourly productivity accounts for most of the decline in GDP, with the decline concentrated in construction and manufacturing.
- Quantitative presentation (Figure 7 and text):
  - Output, Productivity and Hours Worked indexed: (Index; 2022Q4 = 100, 2–quarter moving average).
  - Productivity and Hours Worked contributions to percent change in output: GDP, Industry ex construction, Manufacturing, Construction, GDP excl industry and construction.
- Causes and correlates of weak productivity growth:
  - Labor hoarding: weak demand in manufacturing and construction may have led firms to retain labor, reducing productivity.
    - Survey-based Labor Hoarding Index: percent of managers expecting their firms' output to decrease but employment to remain stable or increase (Index, 2019M1 = 100, seasonally adjusted, 6-month moving average); labor hoarding in industry remains a bit above pre-COVID levels though below the 2022 peak; it continued to rise in the building sector.
  - Sharp decline in investment:
    - Only 15 out of 71 NACE sectors recorded stronger real investment growth in 2022-23 than during the 5 years prior to the pandemic.
    - For most sectors real investment fell sharply, contributing to lower capital-labor ratios and hence lower productivity.
    - Real Investment Growth Across Sectors: (Percent; year-on-year, average) with historical comparisons (2015-2019 and 2022-2023 ranges shown).
  - Increase in share of part-time workers:
    - Notable increase in the share of part-time workers in total employment across sectors (Change in Share of Part-Time Workers in Total Employment; Percentage points; 2019Q4 - 2024Q4).
    - Potential compositional effects on productivity, though evidence on impact is scarce for Austria.

### Conclusion: synthesis of main drivers and characteristics
- Broad characterization of Austria’s downturn (paragraph 17):
  - Downturn especially large in manufacturing and construction as higher interest rates and weak confidence sharply depressed investment and inventory accumulation.
  - Manufacturing downturn is broad-based across sub-sectors, complicating identification of specific causes; may partly reflect a reversal of unusually high manufacturing growth during 2019-22.
  - Larger drop in construction activity than in the rest of the euro area may be partly due to somewhat higher house price overvaluation leading up to the decline.
  - Other contributors to growth underperformance:
    - Higher household saving rates due to weak confidence amid the continued downturn.
    - Reduction in real spending per tourist arrival.
  - GDP decline reflected in a large drop in productivity in manufacturing and construction, potentially driven by lower investment and labor hoarding amid weak demand.

*Sources: Haver Analytics; Statistik Austria; European Central Bank; IMF staff calculations.*

### 10.      Austria benefits from strong institutions, but some indicators highlight inefficiencies

### 10.      Austria benefits from strong institutions, but some indicators highlight inefficiencies

### Key findings on efficiency and public spending
- Austria performs strongly on governance indicators, reflecting a robust institutional framework and effective public administration.
- Austria’s healthy life expectancy exceeds the EU average by less than one year, while health expenditure per capita is 50 percent higher and below the efficiency frontier, indicating potential scope for efficiency improvements.
- The public sector wage premium is estimated to be positive and statistically significant:
  - The estimated wage premium in 2022 was 13.8 percent.
  - Analysis suggests a public sector wage premium of around 14 percent in 2022 after controlling for observable characteristics (noting limitations and possible biases).
- In 2022, the average hourly wage in the public sector was 23.5 percent above that of the private sector.
- The public wage premium is relatively consistent across most of the wage distribution in 2022, but smaller and statistically insignificant for the lowest and highest deciles.
- Composition effects contribute to the average wage gap:
  - Public sector has 35 percent of employees with higher education versus 23 percent in the private sector.
  - The public sector has a larger share of older and more experienced employees, contributing to higher salaries.

### Government structure, fragmentation, and coordination issues
- Austria is a federal state with an increasing number of municipal employees.
- Long-standing structural issues contribute to a rising public wage bill, including:
  - Fragmentation of responsibilities across government levels, with the federal constitution not systematically organizing government tasks and unclear competencies.
  - Lack of clarity in allocation of responsibilities between the federal government and the state governments (Länders), with numerous policy fields governed by different levels of authority, complicating responsibility and increasing duplication.
  - Competence ascertainment procedures involve approximately 50 constitutional laws and over 500 laws with constitutional requirements.
  - Lack of transparency due to complicated hierarchical governance and informal relationships and negotiations between federal and state executives; the fiscal equalization process is fairly complicated and opaque, hindering transparency and efficiency in public service delivery.
- These governance complexities and duplications are associated with significant efficiency losses noted by the Austrian Court of Audit.

### Findings from microdata and regression analysis
- Methodology:
  - Public wage premium assessed using an OLS regression on average hourly wage with controls for gender, education, age, age squared, type of employment contract, occupation, urbanization, and a public-sector dummy, using Austria EU-SILC survey microdata.
  - Public sector workers defined as individuals who answered "Civil servants" to "Last professional position" (question P008010) in the Personal Austria EU-SILC survey.
- Regression highlights (coefficients reported):
  - Sector (public==1): 0.138*** (0.0307)
  - Gender (male==1): 0.101*** (0.0182)
  - Age: 0.0460*** (0.00518)
  - Age^2: -0.000438*** (0.0000621)
  - Full-time work: 0.0271* (0.0149)
  - Urban: -0.0412** (0.0163)
  - Vocational education: 0.200*** (0.0271)
  - Secondary education: 0.251*** (0.0286)
  - Tertiary education: 0.347*** (0.0315)
  - Constant: 1.548*** (0.125)
  - Observations: 3,665; R-squared: 0.374
- Caveats and interpretation:
  - Results may be biased by unobserved factors (skills, productivity, motivation, work organization).
  - This chapter compares monetary wages only; total compensation (including non-monetary rewards) is often more generous in the public sector, which would tend to cause these estimates to understate the compensation premium.
  - Wages tend to be underreported in EU-SILC surveys relative to national income surveys with underreporting more significant in the private sector, which would tend to overstate the public sector wage premium.
  - The most recent survey available was from 2022; the declining trend in the ratio of public to private sector wages suggests the premium may have moderately decreased in 2023.

### Distributional and occupational patterns
- The public wage premium by demographic characteristics:
  - Males and urban employees benefit from a larger estimated public wage premium compared to females and rural employees, though differences are not statistically significant.
  - Positive premium for primary education, vocational training, and secondary education; coefficient for tertiary education is not statistically significant.
- Occupation-specific notes:
  - Some occupations (e.g., administrative staff, care professions, protection and security staff, vehicle drivers, lawyers and cultural professions) exhibit varying public wage premiums; limited observations for some occupations warrant caution.
- Time variation:
  - For lower wage groups, the wage premium shifted from positive in 2015-2018 to statistically insignificant in 2022.
  - The wage premium rose somewhat during 2018-22 for middle deciles.

### Policy recommendations
- There may be scope to reduce the public wage bill by:
  - Restraining wage increases and moderating annual public sector wage increases over time, taking into account difficulty of filling specific positions so wages reflect recruitment and retention needs for hard-to-fill roles.
  - Enhancing the efficiency of Austria’s multi-level government structure by:
    - Eliminating redundancies in tasks and responsibilities.
    - Strengthening intergovernmental coordination.
    - Streamlining regulatory frameworks.
    - Addressing fiscal equalization backlogs.
    - Improving transparency and accountability.
  - Considering non-replacement of retiring civil servants in positions suited to automation to enhance operational efficiency and reduce costs.

### Additional context on startup financing and reforms (selected highlights)
- European and Austrian steps to bolster startup financing and environment:
  - EIB in 2024 invested more than €14 billion through the EIF in support of SMEs and startups through equity and loan guarantees.
  - Austria WirtschaftsService (AWS) investments in startup firms amount to €0.9 billion.
  - Austria’s 2021 revised insolvency framework: easier restructuring prior to insolvency, quicker discharge of debt in 3 years rather than 5 years, limits on personal liability of entrepreneurs.
  - 2024 introduction of FlexCo (Flexible Company) legal form to simplify governance, lower entry barriers, and expand capital-raising options for startups and other firms.
  - EU Solvency II reforms adopted in January 2025 reduced limitations on investments in startup firms by insurers using standard risk models.

*Source: 1autea2025002-print-pdf - 10.      Austria benefits from strong institutions, but some indicators highlight inefficiencies*

### 2024.  European bank deposits of households and

### European bank deposits of households and non-financial corporates are a further €15 trillion.

### Asset pools and institutional allocations
- European investment funds, which could also include assets of European insurers and pensions, amount to almost €19 trillion.
- European insurers allocate about 2 percent of assets to private equity/VC, which is about 1 percentage point less than US insurers.
- European pensions allocate slightly less than 4 percent of assets to private equity/VC, or about 3 percentage points less than US pensions.
- Growth of Asset Pools — Bank deposits and investment funds (dates shown in charts): 12/31/2024 and 12/31/2014 (sources: ECB, Federal Reserve, Haver Analytics, and IMF staff calculations).
- Euro-area bank deposits of households and non-financial corporates: €15 trillion (statement in text).

### Potential financing benefit from aligning European allocations to US levels
- If European allocations matched US allocations to PE/VC, they could free up about €215 billion in funds for private equity/VC (euro area overall).
- Allocating these additional funds among euro-area member states in proportion to their GDP implies about €6.9 billion in additional equity financing for Austrian firms (Austria’s 2024 weight in euro area GDP: about 3.2 percent).
- Comparison: VC investments of €1.6 bn in Austria over 10 years through end-2023.
- Appendix I data table (assets as of end-2024):
  - Insurance Assets: 8,835,665 (millions of euros)
  - Pension Assets: 3,585,607 (millions of euros)
  - Total Assets: 12,421,272 (millions of euros)
  - US allocation to PE/VC (percent of assets): Insurers 3.0; Pensions 7.0
  - European allocation to PE/VC (percent of assets): Insurers 1.9; Pensions 3.7
  - To match US allocation (ppt): Insurers 1.1; Pensions 3.3
  - Additional funds available (millions of euros): Insurers 97,192; Pensions 118,325; Total 215,517

### Funds-of-Funds (FOF) as a channel to increase institutional VC investment
- FOF structure pools capital from investors and invests into a portfolio of different VC funds.
- Potential benefits of FOFs (assuming investor already decided to allocate to private markets):
  - Scaling of investment: example given — institutional investor with €1 billion assets investing 10 percent → €100 million could be allocated to an FOF which distributes to VC funds.
  - Scaling for middle-stage financing: FOFs can target middle-stage VC funds or larger private equity funds.
  - Expertise in VC allocation: FOF professionals can identify and allocate to top-performing VC funds, overcoming lack of in-house expertise.
  - Liquidity management: FOFs can stagger maturities to improve liquidity relative to direct VC investments; VC lockups typically require investor liquidity lockups for as long as 7-10 years.
  - Risk diversification: diversify across private equity and credit funds, across stages of company growth, and reduce operational risk.
- Examples of public and pan-European initiatives:
  - Germany’s “Wachstumsfonds Deutschland” (part of “Zukunftsfonds”) launched 2021, funded primarily by more than 20 major institutional investors with Federal Government and KfW Capital as anchor investors.
  - European Tech Champions Initiative launched in 2023 by the European Investment Bank, the EIF, and five EU member states, managed by the EIF.
- Cautions:
  - Public initiatives need to be well-designed to limit fiscal risks and aim to catalyze private-sector financing.
  - Pan-European FOFs may better realize economies of scale, liquidity, and diversification, especially for smaller countries.

### Exit options: IPOs and M&A activity
- Viable exit options (IPOs, M&A) incentivize startup creation by enabling founders to exit with payouts.
- IPO and M&A activity in Austria and the broader euro area is somewhat limited as a percent of GDP relative to the U.S. and U.K.
- IPO activity in Austria is very small in absolute terms; scale matters for attracting investor interest and liquidity.
- Mergers and Acquisitions Activity: annual sum of deal sizes shown in charts as percent of GDP (series from 2004–2024).
- IPO Activity: annual sum of deal sizes shown in charts as percent of GDP (series from 2004–2024).
- Suggested reform: harmonize securities market regulation and supervision across the euro area to make securities and IPO markets more efficient and leverage economies of scale, including by fostering consolidation of exchanges.

### Regulatory and tax environment
- A well-designed common 28th corporate regime (European Commission proposal announced January 2025) could simplify the regulatory environment for startups and other firms by offering an optional EU-wide legal framework covering corporate, insolvency, labor, and/or tax law.
- Implementation details of the 28th regime will matter for improving the startup regulatory environment and for easing scaling across Europe.
- Austrian tax issues noted for review:
  - Private individuals in Austria cannot carry forward capital losses under Austria’s personal income tax; they can only offset capital losses against gains realized within the same calendar year. This could discourage private investment in startups, which often incur early-stage losses.
  - Individuals can carry forward capital losses by setting up a company for investment purposes, but this adds complexity.
  - Explore ways to reduce the tax code’s bias in favor of debt over equity financing.
- Policy recommendation: aim to remove distortions (e.g., regulatory and tax policies) that may distort investment decisions and hinder investment in startups rather than forcing investments into certain sectors.

### Innovation ecosystem and entrepreneurship support
- Promote collaboration between academic institutions and the private sector; foster innovation “hubs” to realize network externalities and build startup ecosystems.
- Existing Austrian hubs: TU Wien, TU Graz, Institute of Science and Technology (ISTA); scope for further encouragement of interactions between academic research and VC activities.
- Communication and information dissemination:
  - Disseminate information on business formation, the revised insolvency framework, debt discharge, fresh start from a failed business, options for voluntary closure of firms, IPO processes, and other startup-relevant information to reduce risk aversion among potential entrepreneurs.
  - Foster financial literacy among startup founders through targeted education and advisory services (e.g., specialized workshops) to enhance access to finance.

### Data and benchmarking to support VC allocation decisions
- Improved benchmark information on European VC investments regarding returns, liquidity, volatility, and correlation with other investments could reduce uncertainty and make VC more attractive to institutional investors.
- VC benchmarks could be developed in consultation with the private sector and with public support, since such statistics are a public good.

*Source: IMF staff compilation from the chapter text.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1autea2025002-print-pdf.pdf_