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How is Austria coping with the economic crisis?

December 1, 2011

Austria's economy continues to outperform both the Eurozone and the EU  

With Europe in crisis, Austria can count itself lucky. Overall, the country has outperformed both the EU and the Eurozone in these economic hard times. The recession of 2009 was not as deep – Austria’s economy shrinking by 3.9% of GDP, compared to the euro zone average of -4.1%, and the EU average of -4.2%. Also, Austria’s return to growth was faster and its growth stronger in 2010 than in the rest of the EU, marking 3,2% of GDP and as 2011 draws to a close, Austria’s economy continues to outperform both the Euro area and the EU.

How so? Essentially, Austria’s strong showing can be traced to three things: Low budget deficits which allowed countercyclical fiscal policies, continued low unemployment, and the successful management of the credit crisis in the Central European and South Eastern European (CESEE) region.

First, Austria’s enviable budget score card: Although the government used countercyclical fiscal policy to stabilise the economy – increasing state spending on infrastructure, car wreckage scheme, Kurzarbeit and cutting taxes e.g. lowering of income taxes – the state’s annual budget deficit remained lower than the euro area and EU average. It’s high watermark was 4.6% of GDP in 2010, while the euro area’s hit 6%, and the EU 6.4% that year. Therefore, Austria’s total public debt of 73.8% of GDP in 2011 remains significantly lower than the 86.5% average for the euro area, the EU average of 82.3%, and far lower than the U.S.’s 101,1% or Japan’s staggering 212%.

Second, unemployment has been kept at bay, increasing only by 1% in 2009 to 4.8%. By the end of 2010, it had already fallen back to 4.4%, and has continued to fall in 2011 to 4.3%. With the lowest unemployment rate in the EU, Austria is far below the Union’s current average of 9.5%. This favourable record is partly due to the extensive use of Kurzarbeit, shortening working hours rather than laying people off. The costs of this was shared equitably between employees, employers and the state (provided a subsidy).