## 1autea2026002 - 2025. Despite a modest recovery, the outlook is again clouded by a rise in energy costs.

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---

### Context and recent developments
- Economy and politics
  - Austrian economy: high-income with limited macroeconomic vulnerabilities; reversing structurally weaker growth requires supply side reforms.
  - Political context: three-party coalition (first since 1945) mixes center right and center left; ideological differences and rising popularity of the Freedom Party (FPO) constrain some policies.
- Growth and demand
  - GDP growth rose to 1.0 percent in 2025, driven by higher government spending, some recovery in external demand, and a rebound in fixed investment.
  - Private consumption growth weakened despite a sharp recovery in real wages.
  - Output gap narrowed slightly to 0.5 percent in 2025.
- Inflation and energy
  - Headline inflation fell to 2.3 percent in February 2026 after one-off energy-policy effects passed.
  - Pump prices for diesel and gasoline jumped nearly 30 and 20 percent year-on-year, respectively, pushing headline inflation to 3.7 percent in May 2026.
  - Core inflation rose to 3.2 percent in May 2026, reflecting broader pass-through from the energy cost shock.
- Labor market
  - Unemployment rate rose from 4.8 percent in 2022 to 5.7 percent in 2026Q1.
  - Vacancy rate fell from 5.5 percent to 3.2 percent over the same period.
  - Nominal wage growth peaked at 10 percent at end-2023 (driven by backward inflation indexation); wage growth declined to 3 percent in 2025.
  - Labor share of income reached 58 percent (highest since 1997) during the period of high wage indexation.
- Fiscal developments
  - Deficit evolution: 8.2 percent of GDP in 2020; 2.6 percent of GDP in 2023; widened to 4.6 percent of GDP in 2024.
  - Authorities adopted 1.2 percent of GDP in measures (mainly current spending cuts) for 2025.
  - Despite measures and recovery, overall deficit in 2025 improved by only 0.4 percent of GDP because of backward inflation indexation for wages and social benefits, increases in age-related spending, and higher net interest expenditure.
  - The 2024 fiscal loosening reflected both discretionary measures and automatic indexation.
- Financial sector
  - Aggregate NPLs rose from 2 percent in 2023 to 3 percent in 2025.
  - Commercial real estate (CRE) accounts for more than 40 percent of total loans to non-financial corporates; CRE NPLs climbed to almost 8 percent in 2025.
  - CET1 capital rose to 18-19 percent of risk weighted assets.
  - Authorities are increasing the sectoral systemic risk buffer on CRE exposures from 1 percent to 3.5 percent (to be completed by July 2027) and released a CRE dashboard to increase transparency.
- External sector and competitiveness
  - Current account surpluses on the order of 1.5-2 percent of GDP.
  - External position assessed broadly in line with fundamentals and desired policy settings (norm = 2.1 percent of GDP), with the current account gap estimated at 0.3 percent of GDP adjusting for cyclical effects.
  - Real effective exchange rate (REER) overvalued by 0.8 percent in 2025.
  - REER appreciated 10 percent since the global financial crisis; recent multi-year wage negotiations committed to below-inflation increases.

### Outlook and risks
- Near-term outlook
  - Near-term growth will recover only gradually because of the impact of higher energy prices on demand.
  - CPI inflation is projected at 3.2 percent in 2026, about 1.4 percentage points higher than the pre-war forecast.
  - Higher petrol prices are expected to lower projected growth in 2026 by about 0.5 percentage points to 0.6 percent.
- Medium-term projections (selected series)
  - Real GDP (annual percent change): 2024: -0.8; 2025: 1.0; 2026: 0.6; 2027: 1.0; 2028: 1.2; 2029: 1.0; 2030: 0.9; 2031: 0.8.
  - Consumer prices (avg, annual percent change): 2024: 2.9; 2025: 3.3; 2026: 3.2; 2027: 2.8; 2028: 2.1; 2029: 2.1; 2030: 2.1; 2031: 2.1.
  - Net lending/borrowing (% GDP): 2024: -4.6; 2025: -4.2; 2026: -4.2; 2027: -3.8; 2028: -3.6; 2029: -3.5; 2030: -3.5; 2031: -3.5.
  - Current account (% GDP): 2024: 1.5; 2025: 1.9; 2026: 0.7; 2027: 0.9; 2028: 1.2; 2029: 1.5; 2030: 1.7; 2031: 1.9.
- Longer-term outlook and constraints
  - Growth is projected to strengthen to about 1.2 percent by 2028 as energy prices normalize and savings rates normalize.
  - Growth is then projected to slow to potential growth of around 0.8 percent in 2031—below the 1.2 percent average of the past decade—reflecting weak labor productivity growth and a shrinking workforce.
  - Labor supply pressures: projected declines in working age population and downward pressures on working hours.
- Downside risks
  - Main near-term risk: a more severe energy shock that could squeeze private consumption and corporate profitability.
  - Other risks: further global trade tensions, increased fragmentation, growing external competition in Austria’s key export industries.
  - Medium-term risks: fragmentation and growing external competition; wage restraint and niche specialization may be insufficient if German industry struggles to adapt to protectionism and lower-cost producers.
- Stagflation shock scenario
  - Staff modeled a scenario where oil prices double in mid-2026 relative to the WEO baseline and remain elevated through 2027.
  - Scenario effects: reduced foreign demand, rise in inflation expectations, increase in borrowing spreads.
  - Monetary policy response: an estimated hike of 75bps.
  - Fiscal policy response: automatic stabilizers and temporary loosening of 0.7 percent of GDP before resuming fiscal consolidation.
  - Outcomes: permanent loss to output with gradual return to trend; public debt reaches above 90 percent of GDP in the medium term.

### Fiscal outlook and near-term projections
- Fiscal deficit and trajectory
  - The fiscal deficit is expected to remain just above 4 percent of GDP in 2026.
  - Consolidation measures in the 2025–26 dual budget were largely front-loaded, leaving only about 0.6 percent of GDP in additional measures for 2026.
  - Offsetting items weighing on the fiscal balance include higher aging-related spending, interest costs, defense outlays, and lower revenues from cuts in energy- and food-related taxes.
  - Cyclical position: output gap of around 1 percent of potential GDP.
  - Staff view: additional deficit reduction would have been appropriate despite the weak cyclical position.
- Medium-term deficit and debt trajectory
  - Authorities’ objective: reduce the deficit to 3 percent of GDP by 2028.
  - Staff projection: deficit will fall to 3.6 percent of GDP in 2028.
    - Projection reflects that 0.4 percent of GDP in assumed adjustment at the sub-national level has not yet been detailed in concrete measures.
  - To put debt on a firm downward path and rebuild fiscal buffers, further consolidation after 2028 is needed—bringing the deficit to around 2 percent of GDP by 2031.
  - Public debt: around 80 percent of GDP.
  - Policy priority: preserve fiscal space for major shocks and growth-enhancing investment rather than absorb it with rising current spending.
- Composition of planned 2027–28 measures (staff assessment)
  - Concern: projected reliance on revenue measures—around half of the adjustment—may be too high given Austria already has the third-highest revenue ratio in Europe.
  - Planned expenditure restraint focuses on current rather than capital spending but relies mainly on non-parametric measures (e.g., temporary changes to indexation).
  - Staff recommendation: include more durable reforms to the benefits system such as changes to the structure of pension and healthcare benefits, lowering the public sector wage bill, and rationalizing subsidies.
- Fiscal consolidation measures (staff baseline highlights)
  - Table totals (Staff Baseline, Percent of GDP):
    - Total expenditure measures: 1.3 (sum across 2026–2031 in table).
    - Total revenue measures: 1.1 (sum across 2026–2031 in table).
    - Total consolidation across years shown: 2.5 (Percent of GDP) in the staff baseline table.
  - Specific line items (examples from the table rows):
    - Pension adjustments and reforms: 0.6 (total across 2026–2031).
    - PIT saving part of the cold progression gains: 0.3 (total across 2026–2031).
    - Total by year (first column, 2026): 0.6 (Percent of GDP).
- Measures to mitigate higher energy prices
  - Recommended approach: targeted income support for vulnerable households to preserve price signals, encourage energy conservation, and limit fiscal costs.
  - Critique of responses to date: reliance on broad-based tax reductions (in Austria and many European countries) which risk expanding over time and being difficult to unwind, despite some counter-financing (e.g., special distributions and reserves from state-owned energy companies).

### Fiscal federalism and sub-national government (SNG) spending
- SNG spending and imbalances
  - Since the pre-COVID period, the ratio of SNG expenditure to GDP has risen by around 2 percentage points of GDP.
  - SNG spending rise: from an average of 17 to almost 19 percent of GDP.
  - Two structural imbalances:
    - Large vertical fiscal imbalance: SNGs account for 35 percent of total spending but only 10 percent of revenues.
    - Imbalance between policy design and implementation with substantial overlap across government layers undermining accountability.
- Stability pact update (late 2025) aims and gaps
  - Move in the medium term to 76 percent federal, 24 percent subnational allocation of fiscal space.
  - Tighten reporting requirements (now monthly reporting of subnational fiscal data).
  - Commit to allocating EU level fines for missing fiscal targets to the violating entity.
  - Remaining gaps: funding/responsibility imbalances largely unaddressed, enforcement may not be materially tougher in practice, incomplete information collection, and need for parametric changes to benefits.
- Recommended principles for fiscal federalism reform (Austrian Reform Partnership)
  - Transparency:
    - Nine Länder (including Vienna) are required to submit and publish disaggregated fiscal results monthly.
    - Recommendation: extend this requirement to the remaining sub-national entities which account for 50 percent of SNG spending and publish data centrally.
  - Rules-based:
    - Current system uses rules to determine tax revenue distribution but is complemented by ad hoc negotiated transfers that increase risk of fiscal slippages.
  - Accountability:
    - Minimize functional overlap where multiple levels share responsibilities (policy planning, financing, execution) to preserve incentives for expenditure efficiency.
  - Digitalization:
    - Use digital tools (including artificial intelligence), data platforms, and interoperability to make revenue collection, spending, transfers, and oversight more transparent, timely, and efficient.

### Financial sector policy, stability findings, and recommendations
- Financial stability assessment
  - FSAP assessment: short-term financial stability risks remain contained even following the outbreak of conflict in the Middle East.
  - Banking sector status:
    - Remains well capitalized, highly profitable, and liquid.
    - Stress tests confirm: (i) system-wide capital ratios stay well above regulatory requirements even under severe but plausible adverse scenarios, and (ii) banks can withstand significant liquidity outflows.
  - Main risks going forward:
    - Prolonged economic downturn, further deterioration in CRE exposures, and potential negative spillovers from the CESEE region.
  - Recent signs: deterioration in CRE assets may have peaked with declining default probabilities, fewer loans with deferral measures, and falling impairment ratios.
  - Non-bank sector: risks currently limited but warrant monitoring due to interconnectedness with banks, CRE, and CESEE exposures.
- Recommendations for macroprudential framework and supervision
  - Increase the voting power of the central bank at the Financial Market Stability Board given its expertise and mandate for macroprudential supervision.
  - Adjust legal framework to allow for precautionary action for binding borrower-based measures and reintroduce them as a permanent structural tool.
  - Conduct a forward-looking, joint assessment of staffing and budget needs for supervision of less significant institutions across the FMA and OeNB to safeguard supervisory effectiveness and crisis preparedness.
- Recommendations to align the financial safety net with international standards
  - Set up a standing inter-agency crisis management forum for contingency planning and crisis response.
  - Strengthen the deposit insurance system (DIS) by:
    - Shifting to quarterly contributions.
    - Prohibiting placing DIS funds with member institutions.
    - Removing provisions that allow DIS funds to be used for Institutional Protection Schemes.
    - Establishing a credible public-sector backstop to support DIS liquidity when private sources are insufficient or delayed, accompanied by appropriate safeguards.
- Authorities’ views on financial stability
  - View financial stability risks as contained after recent macroprudential policy changes.
  - Emphasized high banking profitability supported capital accumulation well above required levels and noted diversification from CESEE exposures.
  - Recognized CRE risks but argued deterioration stemmed from supply and cost shocks and that banks absorbed asset-quality deterioration; sectoral risk buffer increases and new monitoring dashboards would help guard against future risks.
  - On residential mortgages, authorities felt the macroprudential framework was adequate and cautioned it was premature to view renewed deterioration in lending standards since 2025Q3 as a material concern, while committing to close monitoring.
  - Noted Austria’s deposit insurance schemes fully complied with EU directives.

### Structural reforms to raise potential growth
- Boost labor supply
  - Continue expanding childcare to sustain increased labor force participation, particularly among women.
  - Raise the effective male retirement age (noted as among lowest in Europe) to increase labor supply.
  - Continue integration of immigrants by enhancing language skills, literacy, and recognition of professional credentials.
  - Support European-level reforms to advance mutual recognition of professional qualifications and portability of pension benefit rights.
- Reduce restrictive domestic retail regulations
  - Retail prices remain higher than in neighboring countries after controlling for taxes and income levels; restrictive retail regulations are a likely contributor.
  - Key restrictive features: constraints on business entry (location-specific rules, professional licensing) and constraints on operations (shop-opening hours).
  - Easing these restrictions is recommended to strengthen business dynamism and support higher productivity growth.
- Improve efficiency of R&D spending and incentives
  - Austria has the third-highest R&D spending in Europe, amounting to over 3 percent of GDP.
  - Innovation outcomes underperform relative to this spending level.
  - Recommended redesign of the R&D tax premium:
    - Shift from a flat, scale-based premium toward a front-loaded, growth-oriented incentive.
    - Reward increases in R&D spending, especially R&D wages.
    - Deliver support earlier in cash to align with firms’ liquidity needs and experimentation.
- Deepen and better integrate European capital markets
  - Current financing relies on retained earnings or bank credit; expanding access to equity, venture capital, and patient capital would support innovation and green projects.
  - Domestic reforms:
    - Encourage households to reallocate savings toward diversified, cross-border financial assets.
    - Increase participation in the second-pillar pension system, which currently covers about 25 percent of employees.
    - For second-pillar growth, set investment guidelines: low-cost, well diversified, highly liquid, modest exposure to private equity and venture capital.
  - EU-level reforms:
    - Reduce legal and regulatory fragmentation and increase capacity of ESMA for key market infrastructures and cross-border market activity.
    - Advance market integration initiatives: enhanced passporting for trading venues, a Pan-European Market Operator (PEMO) status, and streamlining cross-border distribution of investment funds.
- Complete pending energy sector reforms
  - Energy facts:
    - High share of renewables in electricity generation: about 87 percent.
    - Electrification relatively low: around 20–25 percent of total energy demand.
  - Recently approved and pending reforms:
    - New Electricity Act: supports smart metering, statutory dynamic pricing, simplifies supplier switching, and enables more flexible grid access.
    - Renewable Energy Expansion Acceleration Act (requires two-thirds parliamentary majority): would significantly shorten project approval processes (currently up to six to eight years) by designating renewable-energy acceleration areas in each of the Länder.
    - EU “Grids Package”: would fast-track cross-border electricity and hydrogen infrastructure and tighten permitting deadlines.
  - Benefits and risks:
    - Completion would reduce reliance on costly imported gas and oil and ease electrification; cross-border interconnections increase exposure to external shocks in neighboring markets such as Germany.

### Staff appraisal — macroeconomic outlook, fiscal policy, and financial stability
- Outlook and risks
  - A modest economic recovery is underway but subject to significant headwinds; recovery likely to remain subdued in the near term.
  - A new energy shock is expected to slow the recovery by raising inflation, weighing on real incomes and dampening private consumption and investment.
  - External downside risks include a more persistent energy shock, greater trade fragmentation, and weaker external demand.
  - Over the medium term growth is projected to strengthen somewhat as demand responds to past monetary easing and lower energy prices, but then ease back toward weak potential growth absent significant structural reforms, due to demographic headwinds and low productivity growth.
- Fiscal policy
  - A stronger and better-quality fiscal adjustment is needed to rebuild buffers.
  - The deficit is projected to remain above 4 percent of GDP in 2026, reflecting front-loaded adjustment in 2025, higher age-related and interest spending, and weaker growth.
  - Any measures to cushion higher energy prices should be targeted, temporary, and preserve price signals.
  - Authorities’ goal of reducing the deficit to 3 percent of GDP by 2028 is appropriate, but further consolidation will likely be needed to reach that target and place debt on a downward path.
  - Given Austria’s already high revenue ratio, future adjustment should rely more on durable expenditure reforms (pensions and healthcare) than additional broad-based taxation.
  - Ongoing reforms to fiscal federal relations should focus on strengthening transparency and centralized reporting, reducing reliance on ad hoc transfers via a more rules-based system, clarifying spending responsibilities, and advancing digitalization to improve efficiency across government levels.
- Financial stability
  - Financial stability risks are contained: Austrian banks remain profitable, liquid, and well capitalized; recent stress testing suggests short-term systemic risks are low.
  - Risks could re-emerge quickly given weak activity, elevated uncertainty, and ongoing weakness in commercial real estate.
  - Recent measures welcomed: gradual increase in sectoral systemic risk buffer on CRE exposures and launch of new real estate dashboards.
  - Recommendations:
    - Restore precautionary borrower-based measures for residential mortgages on a permanent structural basis.
    - Remain vigilant on deterioration in residential lending standards after the shift from binding borrower-based measures to voluntary guidance.
    - Continue progress on AML/CFT legal and regulatory framework improvements and address shortcomings identified in the latest FATF Mutual Evaluation Report.

### Key policy priorities (summary)
- Domestic structural reforms to raise potential growth:
  - Reduce restrictive retail regulation to strengthen competition and business dynamism.
  - Improve efficiency of R&D support by better targeting the R&D tax credit.
  - Complete pending energy reforms to accelerate renewables deployment and ease permitting bottlenecks.
- EU-level actions to support Austria’s growth and resilience:
  - Deepen and broaden the EU single market, better integrate capital markets to channel savings to higher-productivity investment, and reduce legal and regulatory fragmentation.
- Complementary measures to support capital market development:
  - Encourage households to reallocate savings toward diversified long-term financial assets, including through stronger second-pillar pensions.

*Source: IMF staff report on Austria; June 24, 2026.*

### 2025. Despite a modest recovery, the outlook is again clouded by a rise in energy costs.

### 1autea2026002 - 2025. Despite a modest recovery, the outlook is again clouded by a rise in energy costs.

### Context and recent developments
- Economy and politics
  - Austrian economy: high-income with limited macroeconomic vulnerabilities; reversing structurally weaker growth requires supply side reforms.
  - Political context: three-party coalition (first since 1945) mixes center right and center left; ideological differences and rising popularity of the Freedom Party (FPO) constrain some policies.
- Growth and demand
  - GDP growth rose to 1.0 percent in 2025, driven by higher government spending, some recovery in external demand, and a rebound in fixed investment.
  - Private consumption growth weakened despite a sharp recovery in real wages.
  - Output gap narrowed slightly to 0.5 percent in 2025.
- Inflation and energy
  - Headline inflation fell to 2.3 percent in February 2026 after one-off energy-policy effects passed.
  - Pump prices for diesel and gasoline jumped nearly 30 and 20 percent year-on-year, respectively, pushing headline inflation to 3.7 percent in May 2026.
  - Core inflation rose to 3.2 percent in May 2026, reflecting broader pass-through from the energy cost shock.
- Labor market
  - Unemployment rate rose from 4.8 percent in 2022 to 5.7 percent in 2026Q1.
  - Vacancy rate fell from 5.5 percent to 3.2 percent over the same period.
  - Nominal wage growth peaked at 10 percent at end-2023 (driven by backward inflation indexation); wage growth declined to 3 percent in 2025.
  - Labor share of income reached 58 percent (highest since 1997) during the period of high wage indexation.
- Fiscal developments
  - Deficit evolution: 8.2 percent of GDP in 2020; 2.6 percent of GDP in 2023; widened to 4.6 percent of GDP in 2024.
  - Authorities adopted 1.2 percent of GDP in measures (mainly current spending cuts) for 2025.
  - Despite measures and recovery, overall deficit in 2025 improved by only 0.4 percent of GDP because of backward inflation indexation for wages and social benefits, increases in age-related spending, and higher net interest expenditure.
  - The 2024 fiscal loosening reflected both discretionary measures and automatic indexation.
- Financial sector
  - Aggregate NPLs rose from 2 percent in 2023 to 3 percent in 2025.
  - Commercial real estate (CRE) accounts for more than 40 percent of total loans to non-financial corporates; CRE NPLs climbed to almost 8 percent in 2025.
  - CET1 capital rose to 18-19 percent of risk weighted assets.
  - Authorities are increasing the sectoral systemic risk buffer on CRE exposures from 1 percent to 3.5 percent (to be completed by July 2027) and released a CRE dashboard to increase transparency.
- External sector and competitiveness
  - Current account surpluses on the order of 1.5-2 percent of GDP.
  - External position assessed broadly in line with fundamentals and desired policy settings (norm = 2.1 percent of GDP), with the current account gap estimated at 0.3 percent of GDP adjusting for cyclical effects.
  - Real effective exchange rate (REER) overvalued by 0.8 percent in 2025.
  - REER appreciated 10 percent since the global financial crisis; recent multi-year wage negotiations committed to below-inflation increases.

### Outlook and risks
- Near-term outlook
  - Near-term growth will recover only gradually because of the impact of higher energy prices on demand.
  - CPI inflation is projected at 3.2 percent in 2026, about 1.4 percentage points higher than the pre-war forecast.
  - Higher petrol prices are expected to lower projected growth in 2026 by about 0.5 percentage points to 0.6 percent.
- Medium-term projections (selected series from TextTable 1)
  - Real GDP (annual percent change): 2024: -0.8; 2025: 1.0; 2026: 0.6; 2027: 1.0; 2028: 1.2; 2029: 1.0; 2030: 0.9; 2031: 0.8.
  - Consumer prices (avg, annual percent change): 2024: 2.9; 2025: 3.3; 2026: 3.2; 2027: 2.8; 2028: 2.1; 2029: 2.1; 2030: 2.1; 2031: 2.1.
  - Net lending/borrowing (% GDP): 2024: -4.6; 2025: -4.2; 2026: -4.2; 2027: -3.8; 2028: -3.6; 2029: -3.5; 2030: -3.5; 2031: -3.5.
  - Current account (% GDP): 2024: 1.5; 2025: 1.9; 2026: 0.7; 2027: 0.9; 2028: 1.2; 2029: 1.5; 2030: 1.7; 2031: 1.9.
- Longer-term outlook and constraints
  - Growth is projected to strengthen to about 1.2 percent by 2028 as energy prices normalize and savings rates normalize.
  - Growth is then projected to slow to potential growth of around 0.8 percent in 2031—below the 1.2 percent average of the past decade—reflecting weak labor productivity growth and a shrinking workforce.
  - Labor supply pressures: projected declines in working age population and downward pressures on working hours.
- Downside risks
  - Main near-term risk: a more severe energy shock that could squeeze private consumption and corporate profitability.
  - Other risks: further global trade tensions, increased fragmentation, growing external competition in Austria’s key export industries.
  - Medium-term risks: fragmentation and growing external competition; wage restraint and niche specialization may be insufficient if German industry struggles to adapt to protectionism and lower-cost producers.
- Stagflation shock scenario
  - Staff modeled a scenario where oil prices double in mid-2026 relative to the WEO baseline and remain elevated through 2027.
  - Scenario effects: reduced foreign demand, rise in inflation expectations, increase in borrowing spreads.
  - Monetary policy response: an estimated hike of 75bps.
  - Fiscal policy response: automatic stabilizers and temporary loosening of 0.7 percent of GDP before resuming fiscal consolidation.
  - Outcomes: permanent loss to output with gradual return to trend; public debt reaches above 90 percent of GDP in the medium term.

### Policy recommendations and discussions
- Overall policy objective
  - Balance growth-friendly fiscal consolidation with supply-side policies to increase potential growth over the medium term.
- Near-term fiscal priorities
  - Identify fiscal reforms that durably reduce the deficit despite rapidly increasing age-related spending pressures.
  - Given an already high tax burden and the need to preserve growth-enhancing investment, consolidation should focus on:
    - Parametric reforms to current spending.
    - Streamlining the fiscal federalism structure to increase efficiency.
- Financial sector policy
  - Banks remain stable but authorities should:
    - Monitor persistent weaknesses in commercial real estate (CRE).
    - Re-introduce mandatory borrower-based measures for mortgages.
- Medium-term supply-side reforms (national and European level)
  - Address labor supply constraints via:
    - Lower tax wedge.
    - More child and elder care.
    - Increases in the retirement age.
    - Better integration of migrants.
    - Reduction in barriers to labor mobility across the EU.
  - Increase productivity by:
    - More efficient R&D spending.
    - Less reliance on imported expensive gas.
    - Reductions in excessive domestic regulations.
    - Reforms to deepen Austria’s use of European capital markets.
- Authorities’ views
  - Authorities broadly shared staff’s outlook for growth and inflation through the medium term and revised near-term projections upward by similar magnitudes as staff after the energy shock.
  - They argued Austria’s vulnerability to external energy shocks had been reduced (longer contracts, more renewables, and changes in firms’ pricing behavior) but acknowledged downside risks if the energy disruption proved more severe.
  - On labor and pensions, authorities emphasized increases in the retirement age of women and recent pension reforms (e.g., changes to the “corridor pension”) to support labor force participation.
  - Authorities highlighted recent private sector wage restraint as helping restore export competitiveness but acknowledged the necessity of measures to lift weak productivity growth.

*Source: IMF staff report on Austria; June 24, 2026.*

### 14. The fiscal balance is projected to remain unchanged in 2026. The fiscal deficit is expected

### 1autea2026002 - 14. The fiscal balance is projected to remain unchanged in 2026. The fiscal deficit is expected

### Fiscal outlook and near-term projections
- The fiscal deficit is expected to remain just above 4 percent of GDP in 2026.
- Reasons for the unchanged fiscal balance:
  - Consolidation measures in the 2025–26 dual budget were largely front-loaded, leaving only about 0.6 percent of GDP in additional measures for 2026.
  - Offsetting items weighing on the fiscal balance include higher aging-related spending, interest costs, defense outlays, and lower revenues from cuts in energy- and food-related taxes.
  - Economic growth is no longer accelerating as higher prices weigh on private consumption.
- Cyclical position: output gap of around 1 percent of potential GDP.
- Staff view: additional deficit reduction would have been appropriate despite the weak cyclical position.

### Measures to mitigate higher energy prices
- Recommended approach: targeted income support for vulnerable households to preserve price signals, encourage energy conservation, and limit fiscal costs.
- Critique of responses to date: reliance on broad-based tax reductions (in Austria and many European countries) which risk expanding over time and being difficult to unwind, despite some counter-financing (e.g., special distributions and reserves from state-owned energy companies).

### Medium-term deficit and debt trajectory
- Authorities’ objective: reduce the deficit to 3 percent of GDP by 2028.
- Staff projection: deficit will fall to 3.6 percent of GDP in 2028.
  - Projection reflects that 0.4 percent of GDP in assumed adjustment at the sub-national level has not yet been detailed in concrete measures.
- To put debt on a firm downward path and rebuild fiscal buffers, further consolidation after 2028 is needed—bringing the deficit to around 2 percent of GDP by 2031.
- Public debt: around 80 percent of GDP (noted as "around 80 percent of GDP").
- Policy priority: preserve fiscal space for major shocks and growth-enhancing investment rather than absorb it with rising current spending.

### Composition of planned 2027–28 measures (staff assessment)
- Concern: projected reliance on revenue measures—around half of the adjustment—may be too high given Austria already has the third-highest revenue ratio in Europe.
- Planned expenditure restraint focuses on current rather than capital spending but relies mainly on non-parametric measures (e.g., temporary changes to indexation).
- Staff recommendation: include more durable reforms to the benefits system such as changes to the structure of pension and healthcare benefits, lowering the public sector wage bill, and rationalizing subsidies.

### Fiscal consolidation measures (staff baseline highlights)
- Table totals (Staff Baseline, Percent of GDP):
  - Total expenditure measures: 1.3 (sum across 2026–2031 in table).
  - Total revenue measures: 1.1 (sum across 2026–2031 in table).
  - Total consolidation across years shown: 2.5 (Percent of GDP) in the staff baseline table.
- Specific line items (examples from the table rows):
  - Pension adjustments and reforms: 0.6 (total across 2026–2031).
  - PIT saving part of the cold progression gains: 0.3 (total across 2026–2031).
  - Total by year (first column, 2026): 0.6 (Percent of GDP).

### Fiscal federalism and sub-national government (SNG) spending
- Since the pre-COVID period, the ratio of SNG expenditure to GDP has risen by around 2 percentage points of GDP.
- SNG spending rise: from an average of 17 to almost 19 percent of GDP (period comparison).
- Causes of the rise in SNG spending: a mix of temporary shocks (pandemic), macro (inflation), structural (aging), and some decline in spending discipline (suspension in fiscal rules).
- Efficiency concerns: health spending per capita in Austria is one of the highest in the OECD with broadly similar outcomes to countries that spend 40 percent as much; similar efficiency gaps in education, long-term care, and subsidy programs.
- Two structural imbalances in Austria’s federal system:
  - Large vertical fiscal imbalance: SNGs account for 35 percent of total spending but only 10 percent of revenues.
  - Imbalance between policy design and implementation with substantial overlap across government layers undermining accountability.
- Recent stability pact update (late 2025) aims:
  - Move in the medium term to 76 percent federal, 24 percent subnational allocation of fiscal space.
  - Tighten reporting requirements (now monthly reporting of subnational fiscal data).
  - Commit to allocating EU level fines for missing fiscal targets to the violating entity.
- Remaining gaps: funding/responsibility imbalances largely unaddressed, enforcement may not be materially tougher in practice, incomplete information collection, and need for parametric changes to benefits.

### Recommended principles for fiscal federalism reform (Austrian Reform Partnership)
- Transparency:
  - Nine Länder (including Vienna) are required to submit and publish disaggregated fiscal results monthly.
  - Recommendation: extend this requirement to the remaining sub-national entities which account for 50 percent of SNG spending and publish data centrally.
- Rules-based:
  - Current system uses rules to determine tax revenue distribution but is complemented by ad hoc negotiated transfers that increase risk of fiscal slippages.
- Accountability:
  - Minimize functional overlap where multiple levels share responsibilities (policy planning, financing, execution) to preserve incentives for expenditure efficiency.
- Digitalization:
  - Use digital tools (including artificial intelligence), data platforms, and interoperability to make revenue collection, spending, transfers, and oversight more transparent, timely, and efficient.

### Authorities’ views on fiscal outlook and reforms
- Authorities emphasized announced measures were sufficient to exit the EDP and that further consolidation would be needed over the medium term.
- They reported over-performance of fiscal targets in 2025 and attributed potential stalling in progress this year partly to the war in the Middle East.
- Authorities believed measures announced in the proposed two-year budget were sufficient to reach 3 percent of GDP deficit in 2028 and argued the Stability Pact commitments were credible.
- Authorities noted the "sustainability mechanism" in the pension system that commits to reforms if specific savings are not reached by ongoing reforms by the year 2030-31.
- Authorities pointed to likely permanent savings from recent below-inflation adjustments in wages and pensions and expected the Reform Partnership to reduce health service delivery costs without reducing benefits.
- Authorities shared staff’s view that aging-related fiscal costs would remain challenging and that further consolidation would be needed beyond 2028.

### Financial sector policy, stability findings, and recommendations
- FSAP assessment: short-term financial stability risks remain contained even following the outbreak of conflict in the Middle East.
- Banking sector status:
  - Remains well capitalized, highly profitable, and liquid.
  - Stress tests confirm: (i) system-wide capital ratios stay well above regulatory requirements even under severe but plausible adverse scenarios, and (ii) banks can withstand significant liquidity outflows.
- Main risks going forward:
  - Prolonged economic downturn, further deterioration in CRE exposures, and potential negative spillovers from the CESEE region.
- Recent signs: deterioration in CRE assets may have peaked with declining default probabilities, fewer loans with deferral measures, and falling impairment ratios.
- Non-bank sector: risks currently limited but warrant monitoring due to interconnectedness with banks, CRE, and CESEE exposures.
- Recommendations for macroprudential framework and supervision:
  - Increase the voting power of the central bank at the Financial Market Stability Board given its expertise and mandate for macroprudential supervision.
  - Adjust legal framework to allow for precautionary action for binding borrower-based measures and reintroduce them as a permanent structural tool.
  - Conduct a forward-looking, joint assessment of staffing and budget needs for supervision of less significant institutions across the FMA and OeNB to safeguard supervisory effectiveness and crisis preparedness.
- Recommendations to align the financial safety net with international standards:
  - Set up a standing inter-agency crisis management forum for contingency planning and crisis response.
  - Strengthen the deposit insurance system (DIS) by:
    - Shifting to quarterly contributions.
    - Prohibiting placing DIS funds with member institutions.
    - Removing provisions that allow DIS funds to be used for Institutional Protection Schemes.
    - Establishing a credible public-sector backstop to support DIS liquidity when private sources are insufficient or delayed, accompanied by appropriate safeguards.
- Authorities’ views on financial stability:
  - View financial stability risks as contained after recent macroprudential policy changes.
  - Emphasized high banking profitability supported capital accumulation well above required levels and noted diversification from CESEE exposures.
  - Recognized CRE risks but argued deterioration stemmed from supply and cost shocks and that banks absorbed asset-quality deterioration; sectoral risk buffer increases and new monitoring dashboards would help guard against future risks.
  - On residential mortgages, authorities felt the macroprudential framework was adequate and cautioned it was premature to view renewed deterioration in lending standards since 2025Q3 as a material concern, while committing to close monitoring.
  - Noted Austria’s deposit insurance schemes fully complied with EU directives.

*Source: Excerpt from the provided IMF content unit.*

### 24. Reforms to raise potential growth are essential while preserving macroeconomic

### 24. Reforms to raise potential growth are essential while preserving macroeconomic

### Boost labor supply
- Continue expanding childcare to sustain increased labor force participation, particularly among women, following earlier reforms to increase women’s retirement age and recent childcare expansion.
- Raise the effective male retirement age (noted as among lowest in Europe) to increase labor supply.
- Continue integration of immigrants by enhancing language skills, literacy, and recognition of professional credentials.
- Support European-level reforms to advance mutual recognition of professional qualifications and portability of pension benefit rights.

### Reduce restrictive domestic retail regulations
- Retail prices in Austria remain higher than in neighboring countries after controlling for taxes and income levels; restrictive retail regulations are identified as a likely contributor.
- Key restrictive features include:
  - Constraints on business entry (location-specific rules, professional licensing).
  - Constraints on operations (shop-opening hours).
- Easing these restrictions is recommended to:
  - Strengthen business dynamism by encouraging entry and exit.
  - Reallocate activity toward more efficient firms.
  - Support higher productivity growth over time.

### Improve efficiency of R&D spending and incentives
- Austria has the third-highest R&D spending in Europe, amounting to over 3 percent of GDP, driven by highly generous fiscal incentives.
- Innovation outcomes, per the European Innovation Scoreboard, underperform relative to this spending level.
- A large share of the tax incentive accrues to mature firms, while evidence suggests young firms tend to drive innovation.
- Recommended redesign of the R&D tax premium:
  - Shift from a flat, scale-based premium toward a front-loaded, growth-oriented incentive.
  - Reward increases in R&D spending, especially R&D wages.
  - Deliver support earlier in cash to align with firms’ liquidity needs and experimentation rather than firm size or age.
  - Aim to improve efficiency while limiting abuse.

### Deepen and better integrate European capital markets
- Current financing in Austria is largely through retained earnings or bank credit, suitable for traditional outlays (machinery replacement, real estate) but not ideal for riskier investments in innovation, intangibles, digitalization, or large-scale green projects that require equity and patient capital.
- Although firms report few financing constraints, this reflects current firm structure and investment types, not the structure needed for a more innovative economy.
- Expanding access to EU-wide venture capital, private equity, and public equity markets would facilitate higher-productivity investment.
- Two reform tracks:
  - Domestic reforms:
    - Encourage households to reallocate savings from low-yielding deposits and illiquid real estate toward diversified, cross-border financial assets.
    - Increase participation in the second-pillar pension system, which currently covers only about 25 percent of employees.
    - For second-pillar growth, set investment guidelines: products should be low-cost, well diversified, highly liquid, and allow modest exposure to private equity and venture capital consistent with liabilities and risk-bearing capacity.
  - EU-level reforms:
    - Reduce legal and regulatory fragmentation (examples include the 28th regime with common insolvency rules and company law).
    - Increase capacity and responsibility of European level supervision (ESMA) for key market infrastructures, large cross-border asset managers, and systemically important market activity.
    - Advance market integration initiatives: enhanced passporting for trading venues, a Pan-European Market Operator (PEMO) status, and streamlining cross-border distribution of investment funds.

### Complete pending energy sector reforms
- Current energy facts and dynamics:
  - High share of renewables in electricity generation: about 87 percent.
  - Electrification remains relatively low: around 20–25 percent of total energy demand.
  - Reduced taxes and levies on electricity have lowered prices closer to the EU average since 2022.
  - Lower natural gas prices should help lower electricity prices, but grid expansion costs would likely add to retail prices.
- Recently approved and pending reforms:
  - New Electricity Act: supports smart metering, statutory dynamic pricing, simplifies supplier switching, and enables more flexible grid access.
  - Renewable Energy Expansion Acceleration Act (requires two-thirds parliamentary majority): would significantly shorten project approval processes (currently up to six to eight years) by designating renewable-energy acceleration areas in each of the Länder.
  - EU “Grids Package”: would fast-track cross-border electricity and hydrogen infrastructure, tighten permitting deadlines and prioritization for grid projects, and align national connection and planning rules with EU-wide best practice.
- Benefits and risks:
  - Completion of these reforms would reduce reliance on costly imported gas and oil and ease electrification and renewables integration.
  - Austria’s extensive cross-border interconnections increase exposure to external shocks in neighboring markets such as Germany.

### Authorities’ views (summary of responses)
- Authorities broadly agreed with staff’s diagnosis but emphasized different priorities:
  - On retail prices: authorities emphasize improving enforcement (strengthening national competition authority), EU-level action on cross-border competition (territorial supply constraints), and enhancing transparency (proposed price monitoring databases) rather than deregulation.
  - On R&D: government’s Industry 2035 strategy concurs that overall R&D spending is sufficient but effectiveness is low; authorities favor tightening targeting and verification of the R&D credit rather than shifting incentive structure.
  - On capital markets: authorities support greater capital market exposure, propose measures to increase pillar 2 participation, and plan a state-backed fund-of-funds to catalyze venture capital and private equity; supportive in principle of a Savings and Investment Union while noting significant existing cross-border exposure.
  - On energy: authorities note electricity generation from photovoltaics has increased fourfold since 2022 and emphasize the importance of the pending New Electricity Act.

### Staff appraisal — macroeconomic outlook, fiscal policy, and financial stability
- Outlook and risks:
  - A modest economic recovery is underway but subject to significant headwinds; recovery likely to remain subdued in the near term.
  - A new energy shock is expected to slow the recovery by raising inflation, weighing on real incomes and dampening private consumption and investment.
  - External downside risks include a more persistent energy shock, greater trade fragmentation, and weaker external demand.
  - Over the medium term growth is projected to strengthen somewhat as demand responds to past monetary easing and lower energy prices, but then ease back toward weak potential growth absent significant structural reforms, due to demographic headwinds and low productivity growth.
- Fiscal policy:
  - A stronger and better-quality fiscal adjustment is needed to rebuild buffers.
  - The deficit is projected to remain above 4 percent of GDP in 2026, reflecting front-loaded adjustment in 2025, higher age-related and interest spending, and weaker growth.
  - Any measures to cushion higher energy prices should be targeted, temporary, and preserve price signals.
  - Authorities’ goal of reducing the deficit to 3 percent of GDP by 2028 is appropriate, but further consolidation will likely be needed to reach that target and place debt on a downward path.
  - Given Austria’s already high revenue ratio, future adjustment should rely more on durable expenditure reforms (pensions and healthcare) than additional broad-based taxation.
  - Ongoing reforms to fiscal federal relations should focus on strengthening transparency and centralized reporting, reducing reliance on ad hoc transfers via a more rules-based system, clarifying spending responsibilities, and advancing digitalization to improve efficiency across government levels.
- Financial stability:
  - Financial stability risks are contained: Austrian banks remain profitable, liquid, and well capitalized; recent stress testing suggests short-term systemic risks are low.
  - Risks could re-emerge quickly given weak activity, elevated uncertainty, and ongoing weakness in commercial real estate.
  - Recent measures welcomed: gradual increase in sectoral systemic risk buffer on CRE exposures and launch of new real estate dashboards.
  - Recommendations:
    - Restore precautionary borrower-based measures for residential mortgages on a permanent structural basis.
    - Remain vigilant on deterioration in residential lending standards after the shift from binding borrower-based measures to voluntary guidance.
    - Continue progress on AML/CFT legal and regulatory framework improvements and address shortcomings identified in the latest FATF Mutual Evaluation Report.

### Key policy priorities (summary)
- Domestic structural reforms to raise potential growth:
  - Reduce restrictive retail regulation to strengthen competition and business dynamism.
  - Improve efficiency of R&D support by better targeting the R&D tax credit.
  - Complete pending energy reforms to accelerate renewables deployment and ease permitting bottlenecks.
- EU-level actions to support Austria’s growth and resilience:
  - Deepen and broaden the EU single market, better integrate capital markets to channel savings to higher-productivity investment, and reduce legal and regulatory fragmentation.
- Complementary measures to support capital market development:
  - Encourage households to reallocate savings toward diversified long-term financial assets, including through stronger second-pillar pensions.

*Source: IMF staff (Austria).*

### 30. It is proposed that the next Article IV consultation with Austria take place on the

### 1autea2026002 - 30. It is proposed that the next Article IV consultation with Austria take place on the

### Real sector: growth, demand, and labor market
- Growth underperformed the euro area and has staged a modest recovery.
- Real GDP (SWDA):
  - 2021: 5.0
  - 2022: 5.4
  - 2023: -0.7
  - 2024: -0.8
  - 2025: 1.0
  - 2026: 0.6
- Domestic demand:
  - 2025: 2.2
  - 2026: 0.6
- Contributions to 2024–2025 GDP growth show positive contribution from public expenditure and favorable inventory dynamics.
- Sectoral developments:
  - Energy intensive industries have been slow to recover (Industrial Production index, 2019M1=100; energy-intensive series shown separately).
  - Consumer sentiment has weakened (business and consumer sentiment percent balance; SA).
- Labor market:
  - Labor force growth: 2025: 0.2; 2026: 0.2
  - Employment: 2025: 0.3; 2026: 0.2
  - Unemployment rate (EU harmonized):
    - 2021: 6.2
    - 2022: 4.7
    - 2023: 5.1
    - 2024: 5.2
    - 2025: 5.7
    - 2026: 5.7
  - Job vacancy rates declined amid weak growth; vacancies by industry show declines in industry and construction and in services of the business economy.

### Prices, wages, and inflation drivers
- Inflation has been volatile and picked up again since March 2026, mainly due to energy price-related effects.
- Consumer prices (annual average):
  - 2021: 3.5
  - 2022: 7.8
  - 2023: 7.7
  - 2024: 2.9
  - 2025: 3.3
  - 2026: 3.2
- Consumer prices (eop):
  - 2025: 3.8
  - 2026: 3.3
- Core CPI (eop):
  - 2025: 3.1
  - 2026: 2.7
- Energy prices have risen faster in Austria since 2022, temporarily widening the inflation gap relative to the euro area and fueling faster indexation-led wage growth.
- Wages (hourly, percent year-on-year):
  - 2021: 0.8
  - 2022: 5.1
  - 2023: 7.8
  - 2024: 8.1
  - 2025: 4.7
  - 2026: 2.8

### External sector and external balances
- The real effective exchange rate (CPI-based and ULC-based) has continued to appreciate since 2023; unit labor costs have diverged from the euro area.
- Current account and external balances:
  - Current account (% of GDP):
    - 2021: 1.7
    - 2022: -1.3
    - 2023: 1.6
    - 2024: 1.5
    - 2025: 1.9
    - 2026: 0.7
  - Balance on goods and services (2025): 2.3 (percent of GDP)
  - Primary income improved contributing to the 2025 current account improvement.
- International investment position (net, percent of GDP):
  - 2021: 14.4
  - 2022: 16.4
  - 2023: 17.5
  - 2024: 23.9
  - 2025: 26.2
  - 2026: 26.3
- Sustained external surpluses have strengthened the IIP.

### Fiscal sector: deficit, debt, and fiscal stance
- The deficit remains high in 2025 due to inflation, age-related spending, and interest.
- General government finances (percent of GDP):
  - Revenue:
    - 2025: 50.9
    - 2026: 51.1
  - Expenditure:
    - 2025: 55.1
    - 2026: 55.2
  - Net lending/borrowing (fiscal balance):
    - 2024: -4.6
    - 2025: -4.2
    - 2026: -4.2
- Structural balance (% potential GDP):
  - 2025: -3.9
  - 2026: -3.8
- Gross debt (national accounts table):
  - 2021: 82.4
  - 2022: 78.1
  - 2023: 77.8
  - 2024: 80.0
  - 2025: 81.4
  - 2026: 82.3
- Public debt is on a rising path despite a negative fiscal impulse in 2025; fiscal impulse (change in cyclically adjusted primary fiscal deficit) shows a negative impulse in 2025.
- Spreads have remained stable and debt maturities are lengthy:
  - 10-Year Government Bond Yield series shown (Austria vs peers).
  - Government Debt Average Maturity increased (Apr. 2016 vs Apr. 2026 comparisons shown).

### Macrofinancial conditions, credit, and housing
- Credit growth is staging a modest recovery:
  - Private sector credit growth (percent, year-on-year, 3-month moving average) series shows recovery in 2025–2026.
- Mortgage demand indicators show signs of revival (OeNB diffusion index for credit demand for mortgage loans).
- Housing activity:
  - Dwelling investment and residential building permits show bottoming out in housing-related activity.
- Investment intentions show modest strengthening (manufacturing sector investment factors).
- Debt levels:
  - Household debt (percent of GDP) is low in peer comparison.
  - Non-financial corporate debt is moderate relative to peers.

### Financial sector: banks, profitability, asset quality
- Banks’ profitability remains solid with near-record profits, supported by still high interest margins and profitable operations in the CESEE region; this has helped further increase banks’ capital ratios.
- Financial Soundness Indicators (selected):
  - Regulatory capital to risk-weighted assets:
    - 2024: 21.1
    - 2025Q3: 21.8
  - Tier 1 capital to risk-weighted assets:
    - 2024: 18.9
    - 2025Q3: 19.5
  - Return on assets:
    - 2024: 1.2
    - 2025Q3: 1.2
  - Return on equity:
    - 2024: 9.6
    - 2025Q3: 9.2
  - Net interest margin (average spread in basis points between lending and deposit rates) series shows still-elevated margins (chart data).
- Asset quality:
  - NPLs have risen due to deteriorated commercial real estate assets; nonperforming loans to total gross loans:
    - 2024: 2.9
    - 2025Q3: 2.9
  - Provisioning has declined somewhat though banks appear comparatively well provisioned overall (Provisioning percent of NPLs, IFRS, series by country).

### Projections and key medium-term indicators (selected)
- Potential output growth: 2025 onwards: 0.7–0.8 (annual percent)
- Output gap (percent of potential GDP):
  - 2025: -0.5
  - 2026: -0.7
- Investment (% GDP):
  - 2025: 24.4
  - 2026: 23.8
- Gross national savings (% GDP):
  - 2025: 26.3
  - 2026: 24.5
- Nominal GDP (billions of euro):
  - 2025: 513.7
  - 2026: 531.2

*Source: Authorities' data, and IMF staff estimates and projections.*

### Annex I. External Sector Assessment

### Annex I. External Sector Assessment

### Overall Assessment
- The external position of Austria in 2025 is assessed to be broadly in line with the level implied by medium-term fundamentals and desirable policies.
- Potential Policy Responses:
  - Gradual fiscal consolidation will help support disinflation and avoid a persistent inflation differential with the euro area, which over time could undermine competitiveness and external balance.

### Foreign Assets and Liabilities: Position and Trajectory
- Background:
  - Austria’s NIIP has steadily strengthened over the last 30 years in line with consistent current account surpluses.
  - In 2025, the net international investment position (NIIP) increased from 23.9 percent to 26.3 percent of GDP, mainly due to a slight decline in liabilities to 215.3 percent of GDP.
- Assessment:
  - The NIIP increased further in 2025 after rising in 2024, driven by the moderately stronger current account surplus and with a moderate decline in liabilities.
  - Over the medium term, the NIIP is projected to continue to rise gradually in line with projected current account surpluses around the norm.
- 2025 (Percent of GDP):
  - NIIP: 26.3
  - Gross Assets: 1238
  - Debt Assets: 222
  - Gross Liabilities: 1103
  - Debt Liabilities: 407

### Current Account
- Background:
  - Austria's current account recorded a surplus of 1.6 percent of GDP in 2023, as imports fell amid an economic slowdown.
  - In 2024, both import and export volumes dropped by around 3 percent; however, sustained improvements in terms of trade helped maintain the current account balance at 1.5 percent of GDP.
  - In 2025, the current account surplus increased to 1.9 percent of GDP, with continued improvements in terms of trade and some recovery in export growth.
- Assessment:
  - Adjusting for cyclical factors (terms of trade and output gap) based on the IMF’s estimates, the current account balance in 2025 stood at 1.8 percent of GDP, lower than the estimated current account norm of 2.1 percent of GDP.
  - The relative policy gap of -0.5 percent of GDP largely reflects offsetting effects of the credit gap (+0.2) and health expenditure (-0.7).
  - The estimated current account gap implies an estimated gap of 0.8 percent of the REER from the level consistent with fundamentals and desired policy settings.
- Austria: Model Estimates for 2025 (Percent of GDP / REER)
  - Actual CA: 1.9
  - Cyclical contributions: 0.1
  - Additional statistical/temporary factors: 0.0
  - Adjusted CA: 1.8
  - CA Norm (from model): 2.1
  - CA gap: -0.3
    - o.w. relative policy gap: -0.5
  - Elasticity: 0.4
  - REER Gap (in percent): 0.8
  - REER (index)1/: 13.1
  - REER (level)2/: 22.0
  - Source: Authorities' data.
    - 1/ Considers the REER CPI index in each country, and thus does not explain inter-country variations.
    - 2/ Takes into account differences in real PPP exchange rates across countries.

### Real Exchange Rate
- Background:
  - The REER has appreciated over the last few years, by approximately ½ percent during 2022 and 2023 and just below 1 percent in 2024.
  - The rate of appreciation accelerated since then, reaching 1.5 percent in 2025.
- Assessment:
  - The REER index and REER level model estimates suggest that the REER was overvalued within a range of 13–22 percent.
  - However, these estimates are driven mainly by sizable residuals.

### Capital and Financial Accounts: Flows and Policy Measures
- Background:
  - The financial account posted net outflows of about 2 percent of GDP in 2023 and 1 percent of GDP in 2024.
  - In 2025, in line with the larger current account surplus, capital account net inflows of 0.3 percent of GDP, and errors and omissions, net financial account outflows increased to 3.1 percent of GDP, with:
    - direct investment flows of 1 percent of GDP,
    - portfolio investments of 0.5 percent of GDP,
    - other investments of 1.5 percent of GDP.
- Assessment:
  - Risks are limited, given the strength of Austria’s external position.

### FX Intervention and Reserves Level
- Background:
  - The euro has the status of a global reserve currency.
- Assessment:
  - Reserves held by euro-area countries are typically low relative to standard metrics.
  - The currency floats freely.

*Source: IMF staff, Annex I. External Sector Assessment (Austria).*

### Annex V. Authorities’ Response to Past Article IV

### Annex V. Authorities’ Response to Past Article IV

### Fiscal Policy
- Expenditure reforms:
  - Authorities’ actions:
    - The 2025-26 budget includes measures to encourage the increase in the effective retirement age, including through restricting the corridor pension scheme.
    - For the year 2026, the Austrian Parliament approved a "socially balanced" pension increase based on the total monthly pension amount.
    - The current government’s agenda includes reforming subsidies that harm the environment, with a goal to reduce discretionary subsidies (including fossil fuel subsidies) by €2 billion by 2029.
    - Plans are underway to boost healthcare efficiency through greater use of outpatient services, telemedicine, and preventive care.
- Revenue reforms:
  - Authorities’ actions:
    - A working group has been formed with municipalities under the 2024-28 fiscal equalization agreement to explore possible reforms to the property tax.
    - The current government does not intend to reintroduce net wealth taxation, inheritance and gift taxes or take any related action at this time.
- Subnational fiscal constraints:
  - Authorities’ actions:
    - The Stability Act passed in late 2025 aims to prevent further negative surprises at the SNG level via better planning, monitoring, and transparency as well as penalties for non-compliance with agreed targets.
    - Austria launched the June 2025 Reform Partnership to address fragmentation, administrative duplication, and weak coordination by streamlining responsibilities, strengthening coordination, accelerating approval processes, and advancing binding digitalization across all levels of government.

### Financial Sector Policy
- Strengthen capital:
  - Key statistics and actions:
    - Banks CET1 capital ratios increased to 19 percent in 2025 from 17.8 percent in 2024, supported by high profits.
    - The leverage ratio increased from 8.5 percent in 2024 to 9 percent in mid-2025.
    - For SSM banks, Austrian SIs have improved their capital positions through both profit retention and securitization (SRTs).
    - The average Austrian SI CET1 ratio stands at 17.9 percent, and six out of eight SIs report a CET1 ratio above the SSM average (16.2 percent).
- Commercial real estate (CRE) risks and macroprudential measures:
  - Authorities’ actions and measures:
    - A 1 percent capital buffer on select CRE exposures went into effect in July 2025.
    - The FMSB has recommended that the FMA gradually raise this rate, first to 2 percent as of July 1, 2026, and to 3.5 percent one year later.
    - A CRE dashboard has been launched by the OeNB, making information on CRE market developments and credit quality publicly available.

### Labor Market Policy
- Boost labor force participation among women and the elderly:
  - Authorities’ actions:
    - Expansion of childcare services to include a second mandatory year of kindergarten to support more female labor supply.
    - Introduction of a counseling strategy to assist unemployed or retired elderly workers in their job search.
    - Implementation of a monthly account update on pension benefits to encourage longer working lives.

### Climate and Energy Policies
- Accelerate the energy transition and enhance energy security:
  - Authorities’ actions:
    - The outgoing government submitted an updated NECP in August 2024, demonstrating increased ambition for energy transition and climate action.
    - Additional measures include the expansion of hydrogen production and the lift of the ban on carbon capture and storage.
    - The coalition government’s program aims to speed up permitting of energy transition related projects and reduce environmentally harmful subsidies.
    - The Renewable Energy Acceleration Act is pending legislation that aims to accelerate clean energy infrastructure and requires a two-third majority to pass in Parliament.

### Medium-term Growth
- Digital transition and productivity:
  - Authorities’ actions:
    - Austria continues to implement a broadband strategy to extend internet connections to rural areas and to improve digital services for citizens, based on the National Strategic Roadmap for the Digital Decade for 2030.
- Geoeconomic fragmentation risk preparedness:
  - Authorities’ actions:
    - The Supply Chain Intelligence Institute Austria (ASCII) has developed a Supply Chain Pressure Index (ASCPI), which focuses on supply-side bottlenecks relevant to Austrian companies.

### Transnational Aspects of Corruption
- Address foreign bribery risks:
  - Authorities’ actions:
    - The 2026-28 National Anti-Corruption Action Plan prioritizes awareness-raising of foreign bribery risks.
    - The authorities produced a brochure on risk mitigation by business associations and Austrian companies operating abroad.
    - Additional measures for detection include enhanced reporting channels, monitoring of foreign bribery risks, and strengthening incentives for corporate self-reporting.
    - Enhanced prosecutorial guidance, increased human resources, legal clarifications, and ongoing reforms to corporate sanctions and procurement debarment rules are contributing to foreign bribery enforcement.

*Annex V. Authorities’ Response to Past Article IV*

### Annex VIII. Data Issues

### Annex VIII. Data Issues

### Data Adequacy Assessment
- Overall assessment: A — The data provided to the Fund are adequate for surveillance.
- Questionnaire results (median rating across sectors): A A A A A A A
- Sector-level median ratings:
  - National Accounts: A
  - Prices: A
  - Government Finance Statistics: A
  - External Sector Statistics: A
  - Monetary and Financial Statistics: A
  - Intersectoral Consistency: A
- Data quality characteristics (detailed questionnaire results):
  - Coverage: A A A A A A
  - Granularity:
    - National Accounts: A
    - Prices: A
    - Government Finance Statistics: (top cell) A ; (bottom cell) A
    - External Sector Statistics: A
    - Monetary and Financial Statistics: (top cell) A ; (bottom cell) A
    - Financial Soundness Indicators: A
  - Consistency: A A A A
  - Frequency and Timeliness: A A A A A A

### Rationale and Changes since last Article IV
- Rationale for staff assessment:
  - Austria's economic and financial sector data are comprehensive, generally of high quality, and provided in a timely manner.
  - Authorities provide calendar dates of the main statistical releases.
  - Financial sector surveillance is supported by regular publication of financial stability assessments by the central bank.
  - Data could be further strengthened by producing and publishing more data series on CRE developments.
- Changes since the last Article IV consultation:
  - No data weaknesses were identified in the 2024 Article IV Staff Report.

### Corrective Actions, Capacity Development Priorities, and Data Gaps
- Corrective actions and capacity development priorities:
  - The European Commission plans to issue a regulation that requires all EU statistic authorities to publish CRE related price and rent indices.
- Use of data and/or estimates in Article IV consultations:
  - Staff do not use data and/or estimates in lieu of official statistics.
- Other data gaps and ongoing efforts:
  - Development of statistics on the commercial real estate (CRE) sector, including price and rent indices, and relevant indicators for surveillance of risks to the financial sector from CRE (including debt-service coverage ratio), would be useful.
  - Some data gaps with respect to CRE are being closed via AnaCredit data and a CRE price index (forthcoming).
  - The European Commission plan is expected to be issued only 2026 or later; progress is slow.
  - Authorities are working with external partners (e.g., Statistik Austria) to establish bridge solutions for price and rent indices until the final EU regulation enters into force.

### Data Standards and Dissemination
- Austria adheres to the Special Data Dissemination Standard (SDDS) Plus since January 2017 and publishes the data on its National Summary Data Page.
- The latest SDDS Plus Annual Observance Report is available on the Dissemination Standards Bulletin Board.

### Table of Common Indicators Required for Surveillance (selected entries; As of June 09, 2026)
- Exchange Rates
  - Date of Latest Observation: 2026-06-09
  - Date Received: 2026-06-09
  - Frequency of Data: D
  - Frequency of Reporting: D
  - Expected Frequency: D
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities
  - Date of Latest Observation: 2025-12
  - Date Received: 2026-05
  - Frequency of Data: M
  - Frequency of Reporting: M
  - Expected Frequency: M
  - Announced Frequency: M
  - Expected Timeliness: 1W
  - Announced Timeliness: 1M
- Reserve/Base Money
  - Date of Latest Observation: 2026-04
  - Date Received: 2026-05
  - Frequency of Data: M
  - Frequency of Reporting: M
  - Expected Frequency: M
  - Announced Frequency: M
  - Expected Timeliness: 2W
  - Announced Timeliness: 2W
- Broad Money
  - Date of Latest Observation: 2026-04
  - Date Received: 2026-05
  - Frequency of Data: M
  - Frequency of Reporting: M
  - Expected Frequency: M
  - Announced Frequency: M
  - Expected Timeliness: 1M
  - Announced Timeliness: 1M
- Central Bank Balance Sheet
  - Date of Latest Observation: 2026-04
  - Date Received: 2026-05
  - Frequency of Data: M
  - Frequency of Reporting: M
  - Expected Frequency: M
  - Announced Frequency: M
  - Expected Timeliness: 2W
  - Announced Timeliness: 2W
- Consolidated Balance Sheet of the Banking System
  - Date of Latest Observation: 2026-03
  - Date Received: 2026-05
  - Frequency of Data: Q
  - Frequency of Reporting: Q
  - Expected Frequency: M
  - Announced Frequency: M
  - Expected Timeliness: 1M
  - Announced Timeliness: 1M
- Total assets of other depository corporations
  - Date of Latest Observation: 2026-04
  - Date Received: 2026-05
  - Frequency of Data: Q
  - Frequency of Reporting: Q
  - Expected Frequency: M
  - Announced Frequency: M
  - Expected Timeliness: 1M
  - Announced Timeliness: 1M
- Total credit from other depository corporations
  - Date of Latest Observation: 2026-04
  - Date Received: 2026-05
  - Frequency of Data: Q
  - Frequency of Reporting: Q
  - Expected Frequency: M
  - Announced Frequency: M
  - Expected Timeliness: 1M
  - Announced Timeliness: 1M
- Interest Rates
  - Date of Latest Observation: 2026-06-09
  - Date Received: 2026-06-09
  - Frequency of Data: D
  - Frequency of Reporting: D
  - Expected Frequency: D
- Consumer Price Index
  - Date of Latest Observation: 2026-04
  - Date Received: 2026-05
  - Frequency of Data: M
  - Frequency of Reporting: M
  - Expected Frequency: M
  - Announced Frequency: M
  - Expected Timeliness: 1M
  - Announced Timeliness: 2W
- Revenue, Expenditure, Balance and Composition of Financing - General Government
  - Date of Latest Observation: 2025-12
  - Date Received: 2026-04
  - Frequency of Data: Q
  - Frequency of Reporting: Q
  - Expected Frequency: A
  - Expected Timeliness: 2Q
- Revenue, Expenditure, Balance and Composition of Financing - Central Government
  - Date of Latest Observation: 2025-12
  - Date Received: 2026-04
  - Frequency of Data: Q
  - Frequency of Reporting: Q
  - Expected Frequency: M
  - Announced Frequency: M
  - Expected Timeliness: 1M
  - Announced Timeliness: NLT 1M
- Stocks of Central Government and Central Government-Guaranteed Debt
  - Date of Latest Observation: 2025-12
  - Date Received: 2026-04
  - Frequency of Data: Q
  - Frequency of Reporting: Q
  - Expected Frequency: Q
  - Announced Frequency: M
  - Expected Timeliness: 1Q
  - Announced Timeliness: NLT 3W
- Total stock of General Government Debt
  - Date of Latest Observation: 2025-12
  - Date Received: 2026-04
  - Frequency of Data: Q
  - Frequency of Reporting: Q
  - Expected Frequency: Q
  - Announced Frequency: Q
  - Expected Timeliness: 4M
  - Announced Timeliness: NLT 4M
- External Current Account Balance
  - Date of Latest Observation: 2025-12
  - Date Received: 2026-03
  - Frequency of Data: Q
  - Frequency of Reporting: Q
  - Expected Frequency: Q
  - Announced Frequency: Q
  - Expected Timeliness: 1Q
  - Announced Timeliness: NLT 1Q
- Exports and Imports of Goods and Services
  - Date of Latest Observation: 2026-03
  - Date Received: 2026-06
  - Frequency of Data: M
  - Frequency of Reporting: M
  - Expected Frequency: M
  - Announced Frequency: M
  - Expected Timeliness: 8W
  - Announced Timeliness: NLT 10W
- GDP/GNP
  - Date of Latest Observation: 2026-03
  - Date Received: 2026-06
  - Frequency of Data: Q
  - Frequency of Reporting: Q
  - Expected Frequency: Q
  - Announced Frequency: Q
  - Expected Timeliness: 1Q
  - Announced Timeliness: 45D
- Gross External Debt
  - Date of Latest Observation: 2025-12
  - Date Received: 2026-05
  - Frequency of Data: Q
  - Frequency of Reporting: Q
  - Expected Frequency: Q
  - Announced Frequency: Q
  - Expected Timeliness: 1Q
  - Announced Timeliness: 1Q
- International Investment Position
  - Date of Latest Observation: 2025-12
  - Date Received: 2026-05
  - Frequency of Data: Q
  - Frequency of Reporting: Q
  - Expected Frequency: Q
  - Announced Frequency: Q
  - Expected Timeliness: 1Q
  - Announced Timeliness: 3M

*Source: Annex VIII. Data Issues (as presented in the IMF staff report materials).*

### 7.      Eliminating barriers for productive firms boosts overall TFP. Studies show reducing

### 7.      Eliminating barriers for productive firms boosts overall TFP. Studies show reducing

### Resource misallocation and total factor productivity (TFP)
- Studies cited: Restuccia & Rogerson 2017; Hsieh & Klenow 2009 — reducing resource misallocation can notably increase TFP.
- Sellner et al. 2023 estimates that Austria's TFP could rise by 50 percent if it matched US efficiency.

### Austria’s innovation outcomes and patenting performance
- Austria is a European leader in intellectual assets with strong PCT patent filings and trademark registrations, but its per capita patent rate is below top innovators.
- Sources: WIPO (2024).

### Firm-level patterns of innovation
- Share of firms patenting increases with age and size (Orbis and PATSTAT, IMF staff Estimates). Relationships are statistically significant.
- Patent quality rises with firm size but does not change with firm age (Orbis and PATSTAT, IMF staff Estimates). Relationships are statistically significant.
- Established and sizable companies engage in patenting more frequently than smaller or newer firms.
- While innovation quality (measured by forward citation counts) rises with firm size, it does not change with firm age — established enterprises dominate innovation industries but are less likely to drive innovation.

### R&D investment, patent output, and quality
- Investment in R&D correlates with higher patent output and improved quality.
- When intangible assets are used as a proxy, greater R&D investment is linked to increased patenting activity and enhanced quality as measured by citation metrics (Orbis and PATSTAT, IMF staff Estimates). Relationships are statistically significant.

### Financial constraints, firm age, and patenting
- Newer firms face greater financial constraints, which reduces patenting activity.
- Austrian data indicate younger firms encounter more significant financial constraints (high MRPK) compared to older firms, resulting in a reduction in their patenting activity under these conditions.
- Newer firms face financial constraints (high MRPK) and patenting increases as financial constraints fall (Orbis and PATSTAT, IMF staff Estimates). Relationships are statistically significant.
- Methodology note: Based on Hsieh and Klenow (2009), firms are classified as financially constrained when their marginal revenue product of capital (MRPK) exceeds that of other firms.

### Policy framework and proposals to strengthen innovation financing
- Austria's Research, Technology, and Innovation (RTI) Strategy 2030 aims to elevate the country to an international innovation leader by targeting an R&D-to-GDP ratio of 4 percent, up from around 3 percent in 2025, with the goal of growing the number of companies engaged in R&D.
- Rationale for advancing innovation financing through a well-integrated mix of instruments:
  - Remove investment barriers for pension funds and insurers to invest in higher-risk assets such as venture capital (IMF, Selected Issues paper, 2025).
  - Amend the Austrian commercial code to enable better capitalization of internally generated intangibles (Austrian MTFPS, 2025).
  - Targeted subsidies, flexible loss carry-forwards, reduced debt bias in taxes, and better regulations to support startups and SMEs (IMF, Selected Issues paper, 2025).
- R&D tax credit design recommendation:
  - Shift from a flat, scale-based credit towards a front-loaded, growth-oriented incentive—rewarding increases in R&D spending, especially R&D wages, and delivering support earlier in cash—to better align incentives with firms’ liquidity needs and experimentation rather than firm size or age.

### Annex XI — Transnational aspects of corruption (selected findings relevant to facilitation risks)
- Austria volunteered for assessment of transnational aspects of corruption under its Article IV Consultation; assessment focuses on facilitation of corruption (effectiveness of AML/CFT framework in preventing foreign officials from concealing proceeds of corruption).
- A detailed assessment report of Austria’s AML/CFT measures, published in April 2026, noted clear progress since 2016 with notable improvements related to transparency of beneficial ownership and financial sector supervision.
- Remaining gaps and recommended priorities:
  - Develop a more comprehensive understanding of transnational threats, including corruption and laundering of proceeds of domestic and foreign corruption; increase awareness of this risk by financial institutions beyond PEP lists.
  - Increase efforts to investigate and prosecute corruption-related ML in line with Austria’s risk profile; corruption-related ML investigations are low and have not triggered any indictments. Freezing and seizure measures have been applied, but overall asset seizure values are moderate considering Austria’s risk profile.
  - Address major shortcomings in supervision of designated non-financial businesses and professions (DNFBPs) as a priority. Austria’s real estate sector is vulnerable to ML, particularly through acquisition of high-end properties by PEPs and foreign companies. Authorities should strengthen oversight of high-risk DNFBPs such as real estate agents, lawyers, trust and company service providers to reduce the risk of proceeds of corruption being laundered through these sectors.

*Source: IMF staff report excerpt (Austria Staff Report for the 2026 Article IV Consultation — informational annex).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2026/english/1autea2026002.pdf_