IMF Executive Board Concludes 2021 Article IV Consultation with Austria

IMF News, September 9, 2021

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Austria entered the COVID-19 pandemic from a robust economic position with significant policy space.
Real GDP declined by 6.3 percent in 2020 and contracted further in early 2021, driven by a sharp deceleration of private investment and consumption and a muted winter tourism season.
The swift and sizable policy response to the pandemic has been effective in saving lives, protecting vulnerable households, and supporting workers and firms.

Growth projections:
- 2021: 3.5 percent
- 2022: 4.5 percent
- Medium term: potential of around 1¾ percent
Near-term acceleration expected from 2021Q2 as lockdowns were progressively lifted alongside fast progress in vaccinations.
Medium-term output is expected to remain below the pre-crisis trend.
Outlook is subject to unusually high uncertainty, with near-term risks from the unpredictable development of the pandemic, particularly the threat of the delta variant and efficacy and extent of vaccinations.

Directors welcomed Austria’s swift and effective policy response to the pandemic.
Directors noted the economic outlook is challenging, with the real GDP level likely to remain below its pre-COVID trend over the medium term.
Fiscal policy in 2021 struck an appropriate balance between supporting hard-hit sectors and jump-starting the economy; fiscal policy should remain flexible given high uncertainty.
Directors commended Austria’s post-crisis priorities on digital and green transformation.
Banking sector: Directors commended resilience during the pandemic but warned of emerging corporate vulnerabilities and housing market risks that should be addressed to preserve financial sector stability.

Fiscal policy
- As fiscal space remains, consider additional spending to secure a faster and more sustainable recovery.
- Possible focus areas: facilitating labor reallocation, reducing Austria’s high labor tax wedge, rehabilitating corporate balance sheets, fostering green and digital transition, and mitigating economic scarring.
- A few Directors cautioned that further stimulus may not be warranted amid inflationary pressures driven by supply-side constraints.
Financial sector stability
- Close monitoring of the impact of the pandemic on corporate and bank balance sheets.
- Provide solvency support to viable firms.
- Impose binding lending limits to contain housing market risks.
- Swift implementation of recommendations to strengthen supervision of less significant financial institutions.
- Continue efforts to improve effectiveness of the AML/CFT framework.
Labor market and social measures
- Implement more targeted measures for those disproportionately affected by the crisis.
- Job creation and reallocation measures: language training, hiring subsidies, and relocation grants to address regional and skill mismatches.
Climate and green transition
- Phased introduction of carbon prices, using revenue to compensate low-income and vulnerable households and to support other key reform priorities.
- Adopt green budgeting practices to integrate climate considerations into fiscal frameworks.

Output
- Real GDP growth (%): 2018: 2.6; 2019: 1.4; 2020: -6.3; 2021: 3.5; 2022 (Proj.): 4.5
Employment
- Unemployment (Harmonized) (%): 2018: 4.9; 2019: 5.3; 2020: 5.5
Prices
- Inflation (%): 2018: 2.1; 2019: 1.5; 2020: 1.8
General government finances (% of GDP)
- Revenue: 2018: 48.9; 2019: 49.2; 2020: 49.0; 2021: 48.6; 2022 (Proj.): 48.2
- Expenditure: 2018: 48.7; 2019: 57.9; 2020: 54.7; 2021: 51.6
- Fiscal balance: 2018: 0.2; 2019: 0.6; 2020: -8.9; 2021: -6.2; 2022 (Proj.): -3.3
- Public debt (% of GDP): 2018: 74.0; 2019: 70.5; 2020: 83.9; 2021: 85.3; 2022 (Proj.): 82.6
Money and credit
- Broad money (% change): 2018: 8.0; 2019: 4.6; 2020: 9.7; 2021: 4.7; 2022 (Proj.): 4.3
- Credit to the private sector (% change) 1/: 2018: 4.8; 2019: 5.1; 2020: 3.7; 2021: 3.3
Balance of payments
- Current account (% of GDP): 2018: 1.3; 2019: 2.8; 2020: 2.5; 2021: 2.0; 2022 (Proj.): 2.3
- FDI (% of GDP): 2018: 0.5; 2019: 1.7
- Reserves (months of imports): 2018: 1.2; 2019: 1.6
- External debt (% of GDP): 2018: 149.8; 2019: 153.7; 2020: 164.1; 2021: 167.5; 2022 (Proj.): 145.6
Exchange rates
- REER (% change): 2018: 0.8; 2019: -0.7; 2020: -10.4

Source: IMF Executive Board Concludes 2021 Article IV Consultation with Austria