As in the Eurozone as a whole, the economic recovery is slow and fragile in Austria as well. In October, the International Monetary Fund (IMF) was still forecasting economic growth of 1% for 2014 and an increase to 1.9% for 2015. According to the Austrian Institute for Economic Research (WIFO), recessive tendencies have become noticeable in the meantime, reducing the forecasts for the two years to 0.3% and 0.5%, respectively. Austria is suffering from the slowdown in world trade and has the highest inflation rate of all EU countries. Growth in private consumption is being slowed by the inflation rate, tax bracket creep and the difficult labour market situation.
This is offset by the positive effects of the current extremely low price of oil, service sector stability and substitution of some export markets. Although the low level of interest rates is beneficial for public budgets and the debt burden, it is a problem when they remain at such a low level for a long time because long-term inflation expectations also fall. This in turn restricts the ability of companies to set prices and acts as a negative incentive for investments. The trend to lower interest rates will continue in 2015, and will also bring further future challenges for the life insurance market in particular.
Significant elements of the Austrian banking system were restructured in 2014. The national debt rose 5.6 percentage points over the previous year to 80.1% of gross domestic product (GDP), due in part to EUR 4.4 billion in aid provided to banks. A further EUR 1 billion in aid measures is planned for 2015. Austria’s overall credit rating in international financial markets remains unchanged at an AA+ rating from Standard & Poor’s.
This is not expected to change as a result of the FMA’s (Austrian Financial Market Authority) decision on 1 March 2015 to resolve the government bank resolution company HETA (resolution company for Hypo Alpe Adria) under BaSAG (Austrian Federal Act on the Recovery and Resolution of Banks) and the effects this has on Austria’s attractiveness as a financial centre. VIG has taken account of this in its consolidated financial statements as of 31 December 2014 by making large write-downs of Austrian Group company claims against HETA.
The provisions of Solvency II that concern the European insurance supervisory authority will take effect to the extent planned on 1 January 2016, as will the amendments to the Austrian VAG.
The Austrian Insurance Association (VVO) expects premiums to rise to EUR 17.2 billion in 2015, representing a year-on-year increase of 0.6%. While the property and casualty area is expected to grow by 2.0%, or 0.8 percentage points less than in 2014, the life insurance business, which rose by close to 4% in 2014 due to an increase in single-premium business, is likely to record a decrease of 2% in the coming year. Premium volume in the Austrian health insurance sector is expected to show stable growth at a rate of 3.2%.