On 2 September 2022 the IMF published a report following the conclusion of discussions with Austria under Article IV of the IMF’s articles of agreement.
The IMF report notes that Austria’s economy has recovered strongly from the problems caused by the pandemic, helped by the effective policy measures and public health system. Real GDP rose by 4.8% in 2021, although it was held back owing to the size of the tourism and hospitality sectors which were among the hardest hit sectors in the pandemic.
As Austria is highly dependent on energy imports from Russia, the economy is vulnerable to the effects of the Ukraine war. As a result, the report notes that economic growth is likely to fall during the second half of 2022 and in 2023, recovering to around 1.75% in the medium term. Economic output will remain below the levels seen before the pandemic.
There are still significant downside risks to the economy. Government economic policy should focus on reducing the impact of the Ukraine war, building up more resilience in the economy and encouraging growth.
Measures must be taken to safeguard medium-to-long-term energy security, including provision of incentives for conservation and fuel switching, strategies to diversify gas supplies through cooperation with other European countries and to promote domestic green energy production.
The labour tax wedge should be reduced by indexing the personal income tax bands, to avoid further contraction resulting from higher inflation. To assist fiscal consolidation, increased control will be required over discretionary expenditure, with additional spending targeted at promoting growth and economic resilience.
The effects of population ageing will increase the cost of pensions and healthcare. The likely reduction of the workforce due to the ageing population will reduce the amount of social security contributions and personal income tax collected. The government will need to introduce reforms to manage this situation over the medium term.
Labour shortages can be addressed through measures to promote employment and reduce the skills mismatch on the labour market. Employment could be promoted through measures such as retraining programs, language training, relocation assistance and encouragement of participation in the workforce by older people. The IMF report welcomed measures to integrate refugees from Ukraine.
Productivity can be increased by accelerating the digital transition and thereby increasing the potential for economic growth. Greater digital access can also help the green transition by increasing options to work from home and opportunities for online banking and commerce. These developments can reduce the need for transport, resulting in lower fossil fuel consumption and reduced greenhouse gas emissions.
