IMF Executive Board Concludes 2022 Article IV Consultation with Austria

IMF News, September 2, 2022

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Published: September 2, 2022

Overview

The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Austria.
The Austrian economy recovered robustly from the pandemic, with real GDP recovering by 4.8 percent in 2021.
The recovery lags somewhat compared to peers, partially due to the strong concentration of the winter tourism and hospitality sectors in Austrian GDP.
Austria is highly vulnerable to the fallout of Russia’s war in Ukraine because of:
- high dependence on energy imports from Russia,
- deep integration into global value chains,
- large banking exposures.
Growth is projected to decline significantly during 2022:H2 and 2023 due to impacts of the war and the related energy crisis.
Over the medium term, annual growth is projected to recover to around 1¾ percent.
Output will remain below the pre-crisis trend.
Uncertainty is extraordinarily high with significant downside risks.

Executive Board Assessment

The war in Ukraine constitutes another shock to the economy and has caused downside risks to rise considerably.
Economic policies should aim at cushioning the impact of war, building resilience, and boosting growth.
Measures taken to address inflation concerns are temporary, but many are broad-based while some actions could undermine green transition efforts.
Any additional support should allow full pass-through of international prices to consumers while providing more targeted and temporary transfers.
Austria’s contingency planning for a gas supply disruption is welcome but more is needed to safeguard medium-to-long-term energy security, including:
- providing incentives for conservation and fuel switching,
- developing strategies to diversify gas supplies in coordination with EU partners,
- accelerating domestic green energy production.
The eco-social reform is an important step in the green transition. Protection of vulnerable households is critical, but IMF advises against increasing broad-based compensation above the medium-term neutrality objective.
Personal income tax indexation will keep the labor tax wedge down and avoid an additional contractionary effect from higher inflation. However:
- together with indexation of social benefits, the authorities now face significant rigidities in fiscal consolidation,
- increased discretionary expenditure control will be required to achieve Austria’s deficit objectives.
Additional spending should be targeted on increasing potential growth and promoting economic resilience, while safeguarding debt sustainability.
Population aging will increase pension and health care costs while reducing contributions; reforms to address this increasing liability would be appropriate over the medium term.

Financial Sector and Macroprudential Policy

The banking sector has weathered the pandemic well, but risks related to the Ukraine war warrant cautious monitoring of asset quality and enhanced supervision.
To address financial sector risks from residential real estate prices:
- the plan to make binding the borrower-based measures is welcomed,
- more should be done if the overvaluation pressures persist.
Additional capital-based macroprudential measures, such as a sectoral systemic risk buffer calibrated to real-estate exposure, should be considered if vulnerabilities persist.

Labor Market, Migration, and Skills

Measures to reduce labor market mismatch and promote employment can alleviate Austria’s labor shortages, including:
- re-skilling programs,
- language training,
- relocation assistance,
- policies to boost old-age labor force participation.
Measures to rapidly integrate refugees from Ukraine are welcome from both a humanitarian and economic perspective.

Digital and Green Transitions

Accelerating the digital transition will help boost productivity and raise Austria’s growth potential.
Digital spending could contribute to the green transition by increasing:
- work-from-home options,
- online banking and commerce,

which could lower transport needs, fossil fuel consumption, and greenhouse gas emissions.

Key Statistics and Projections (Table 1: Austria: Selected Economic Indicators, 2019–23)

Population (million): 8.9
Per capita GDP: $53,285
Quota (current; millions SDRs/% of total): 3,932 (0.8%)
Literacy 1/: 100%
Main products and exports: Diversified
Poverty rate 2/: 13.9%
Key exports markets: Germany, CESEE

Output — Real GDP growth (%):
- 2019: 1.5
- 2020: -6.7
- 2021: 4.8
- 2022 (Proj.): 3.9
- 2023 (Proj.): (blank in table)

Employment — Unemployment (Harmonized) (%):
- 2019: 5.4
- 2020: 6.2
- 2021: 4.5
- 2022 (Proj.): 4.6

Prices — Inflation (%):
- 2019: 1.4
- 2020: 2.8
- 2021: 7.1
- 2022 (Proj.): 3.7

General Government Finances (% of GDP):
- Revenue:
- 2019: 49.2
- 2020: 49.0
- 2021: 50.1
- 2022 (Proj.): 49.5
- 2023 (Proj.): 49.3
- Expenditure:
- 2019: 48.6
- 2020: 57.0
- 2021: 56.0
- 2022 (Proj.): 52.7
- 2023 (Proj.): 51.0
- Fiscal balance (% of GDP):
- 2019: 0.6
- 2020: -8.0
- 2021: -5.9
- 2022 (Proj.): -3.2
- 2023 (Proj.): -1.7
- Public debt (% of GDP):
- 2019: 70.6
- 2020: 83.9
- 2021: 83.0
- 2022 (Proj.): 79.4
- 2023 (Proj.): 77.5

Money and Credit:
- Broad money (% change):
- 2019: 9.5
- 2020: 4.9
- Credit to the private sector (% change) 3/:
- 2019: 5.1
- 2020: 7.0
- 2021: 6.4
- 2022 (Proj.): 3.3

Balance of Payments:
- Current account (% of GDP):
- 2019: 2.1
- 2020: 2.5
- 2021: -0.5
- 2022 (Proj.): -0.8
- 2023 (Proj.): -1.0
- FDI (% of GDP): 2.3 (year not specified in table)
- Reserves (months of imports):
- 2019: 1.2
- 2020: 1.6
- External debt (% of GDP):
- 2019: 154.4
- 2020: 164.9
- 2021: 161.7
- 2022 (Proj.): …

Exchange Rates — REER (% change):
- 2019: -1.1
- 2020: -8.3
- 2021: 8.4

Sources: Authorities; and staff estimates and projections. 1/ Percent of population aged 15–74 with education attainment between pre-primary and tertiary education. 2/ 2020, at risk of poverty rate after social transfers. 3/ Households and non-financial corporations. Exchange rate adjusted.

IMF Communications Department, Press Release No. 22/296 (September 2, 2022).