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OECD: Austria weathers the global crisis better than others

Country report © Dorn-Fussenegger

© Dorn-Fussenegger

July 9, 2009

Austria should continue to profit from its economic ties with the CEE countries 

Austria has weathered the global economic and financial crisis better than other highly developed countries. This finding was made in the recent country report of the OECD (Organisation for Economic Cooperation and Development). The reason why Austria still boasted one of the highest per-capita gross domestic products (GDP) was the highly dynamic economic development up to the early 1990s from which Austria was still benefiting. However, Austria had lost ground in the 15 years preceding the crisis vis-à-vis the bestperforming countries.The OECD experts identified two reasons for the downward trend. People with low qualifications were integrated inadequately into the labour market. In contrast to manufacturing, the more sheltered service sector was significantly lagging behind international competition.

Austria’s measures to cope with the crises earned praise, but the OECD urged Austria to come up with a strategy to reduce public debt as quickly as possible. The deterioration of Austria’s budget position was classified as substantial and unavoidable. Therefore it was important to consolidate the budget on a sound foundation as soon as recession was over. These measures should be based on expenditure cuts.Opportunities for cost savings were identified in the health sector, community services and the public administration. Additional income could be reaped from higher consumption, land and environmental taxes, but this was diametrically opposed to the plans of the federal government. Tax increases had been ruled out categorically at least in the short and medium term.The new budget law, providing for multiannual budget caps, met with the full approval of the OECD. Austria had also made progress in limiting the pension expenditure.

According to the OECD’s report on Austria, the main risk continued to be the heavy investments of domestic banks in Eastern Europe. In case the economic situation was deteriorating, “further financial-sector support“ might be needed. The recession in Central and Eastern Europe (CEE) affected above all Austrian exports and bank profits – with adverse effects on economic growth, income and employment. Against the background of a positive growth differential between CEE and EU countries, Austria should, however, continue to profit from its economic ties with the CEE countries. In general, the increased openness of the Austrian economy had shown positive effects in the past few years.