IMF Executive Board Concludes 2024 Article IV Consultation with Austria

IMF News, May 13, 2024

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On May 3, 2024, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Austria.
Economic policy support, including the use of available fiscal space, helped Austria recover rapidly from the pandemic and cushion the adverse impact of the energy-price shock following Russia’s invasion of Ukraine.
Higher energy prices and higher interest rates weighed on growth, with the economy contracting in 2023.
Inflation peaked in early 2023 and is now declining, but remains above the euro-area average, with services sector inflation described as relatively high and sticky.

Baseline projections:
- A modest recovery is expected in 2024 as higher real wages support consumption.
- Growth is expected to gather pace during 2025–26 on stronger investment demand, supported by some expected monetary policy easing during 2024–25.
- In the medium term, growth is projected to be around 1 percent amid downward pressures from population aging.
- Inflation is expected to decline gradually to the target by the second half of 2025.
Key risks (sizeable and two‑sided):
- Uncertainties around external demand.
- Energy market developments.
- Inflation persistence.
- Depth and speed of real estate market corrections.
Executive Directors noted risks in both directions and reiterated vulnerabilities from high energy prices, elevated inflation, and higher interest rates that contributed to the 2023 contraction.

Directors welcomed Austria’s strong policy responses but urged fiscal policy to:
- Support disinflation and rebuild buffers.
- In the near term, save any revenue overperformance and avoid new deficit‑creating measures while remaining flexible as conditions evolve.
Medium‑term fiscal priorities highlighted:
- Fiscal adjustment measures to offset rising spending pressures from aging.
- Bolster investment in the green transition.
- Strengthen buffers against adverse shocks.
- Put the public‑debt ratio on a clear downward path.
Options to generate fiscal room suggested by Directors:
- Reducing environmentally harmful subsidies and tax expenditures.
- Updating property taxes.
- Increasing healthcare spending efficiency.
- Further reforming pensions.

Directors welcomed the financial system’s resilience through recent shocks but urged vigilance on key risks, especially:
- Commercial and residential real estate sector vulnerabilities.
Specific recommendations:
- Close supervisory data gaps in the commercial real estate sector expeditiously.
- Retain the mandatory borrower‑based limits on mortgage lending as a permanent, structural measure.
- Banks should conserve recent high profits to strengthen buffers, including investment in cybersecurity technology.
- Swift implementation of key recommendations to improve financial crisis management.
- Continued strengthening of Austria’s AML/CFT framework.

Need for further progress on structural reforms to address demographic headwinds and boost medium‑term growth:
- Commended efforts to boost labor‑force participation by expanding childcare resources and raising women’s standard pension age.
- Urged additional efforts to boost labor supply, including:
- Further expanding childcare.
- Closing gender wage gaps.
- Enhancing migrant integration.
- Exploring the scope for further pension reforms.
On the green transition:
- Welcomed progress and urged additional measures, including removing regulatory bottlenecks, ensuring adequate resources for green investment, and addressing skill shortages.
- Emphasized that progress would also enhance energy security amid widening geoeconomic fragmentation pressures.

Notes on sources: Sources: Authorities; and IMF staff estimates and projections. 1/ Percent of population aged 15-74 with education attainment between pre-primary and tertiary education. 2/ 2022, at risk of poverty rate after social transfers. 3/ Households and non-financial corporations. Exchange rate adjusted.

IMF Communications Department, May 13, 2024.