On September 10, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Austria.
Austria is a rich, equitable and stable country. The social safety net is ample; thus, poverty and income inequality are low, contributing to strong social cohesion and security.
The economic recovery is strong and broad-based. Following several years of slow growth, Austria’s output picked up markedly in 2017, and through early-2018. Output expanded by 3 percent in 2017, boosted by income tax cuts passed in 2016, higher public spending on refugees and a recovery in private investment in 2017, laying the foundation for a sustained robust expansion. Consumer and business confidence indicators have surpassed levels observed before the GFC and credit growth has recovered. Employment growth has accelerated, and unemployment has begun declining recently. Inflation is running slightly higher than in peers, albeit close to the ECB Euro Area target. Financial sector buffers have strengthened. Debt has declined by 5 percentage points of GDP to 78.5 percent in the year to end-2017. The near-term outlook is for strong growth in 2018, at 3 percent, and a gradual return to a potential growth of about 1¾ percent over the medium-term. Risks to the baseline are mainly external, however, their impact would likely be limited.
Executive Board Assessment [2]
Executive Directors welcomed Austria’s robust and broad‑based economic growth on the back of sound domestic policies and a favorable external environment. Together with strong business confidence, this has contributed to job creation and a decline in unemployment. Looking ahead, Directors encouraged the authorities to take advantage of the favorable position to step up structural reforms to raise growth potential through inclusive policies. This will help preserve Austria’s important achievements in income equality and social cohesion.
Directors commended the authorities for persevering with fiscal consolidation and maintaining public debt on a downward path. They observed that, while the short‑term fiscal outlook is favorable, long‑term sustainability will require further structural reforms. With spending pressures likely to rise from population aging, it will be important to specify and prioritize reforms that enhance the sustainability of the pension system and generate cost savings in healthcare and subsidies spending. Adjustments in fiscal relations between federal and subnational governments could be necessary to ensure the success of such reforms. Directors emphasized that the authorities’ envisaged fiscal consolidation should aim to remain equitable and growth‑friendly.
Directors welcomed the progress in reducing banking system vulnerabilities through improved capitalization and asset quality, as well as a further strengthening of Austrian banks’ foreign subsidiaries’ funding base. While risks have subsided, Directors recommended remaining vigilant and further increasing banks’ capital buffers. They also underlined the need to continue efforts to improve cost efficiency to enhance long‑term profitability, in particular of smaller banks.
Directors agreed that real estate related risks to financial stability remain contained at present,but urged the authorities to continue to closely monitor house price developments and variable rate and foreign currency denominated housing loan exposures, in order to identify early any household balance sheet strains. They welcomed the recently established legal basis for targeted real estate specific macroprudential tools. While the use of the new macroprudential instruments does not appear necessary at this time, Directors underscored the need to continue to provide clear guidance to banks to maintain sustainable lending standards. It will also be important to continue to bolster the AML/CFT framework.
Directors welcomed the supply‑side measures that the authorities are undertaking. They underlined that raising potential growth and lowering structural unemployment require strengthening competition and implementing proactive policies to enhance education outcomes, address skills mismatches, promote labor participation of women and the elderly, and integrate foreign nationals into the labor market. Directors noted that structural and fiscal measures could raise labor demand, including by shifting the tax mix away from labor and ensuring an adequate level of public investment.
It is expected that the next Article IV consultation with Austria will be held on the standard 12‑month cycle.
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Austria: Selected Economic Indicators, 2015–23 |
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[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. [2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm. |
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