Although the rate of growth decreased in the EU in 2016, Austria recorded an increase of 0.5 percentage points over the same period (total growth of +1.5% in 2016). Since close to 70% of exports go to the EU, a slowdown in European growth will also have an adverse effect on the Austrian economy in the future. The Austrian Institute of Economic Research (WIFO) is predicting that growth will remain constant over the next two years at +1.5% (2017) and +1.4% (2018).
Strong growth in domestic demand is the most significant positive factor for 2017. This is offset, however, by a propensity to consume that is expected to decline due to rising inflation and high unemployment.
WIFO considers the government budget for 2017 as neutral for the economy, particularly since expansive tax measures are offset by a reduction in government expenditure. The effects of the tax reductions will continue to be felt in the first half of 2017, but new stimulus will be needed over the medium term. The increase in EU subsidies to Central and Eastern European countries could also have a positive effect on the Austrian economy, particularly since they support infrastructure projects with Austrian involvement and restrict the movement of workers. Since Austria’s trade relations with the United Kingdom only represent around 3% of Austrian goods exports, Brexit will have a limited effect on Austria’s economy. The potential indirect risk to Austria from a weakening of the German economy due to Brexit is significantly more important in the medium term.
Given a budget deficit of 1.5% in 2017 and 1.1% in 2018, the Austrian national debt will remain at a high level and only slowly recover. Debt ratios of 83.7% of GDP (2017) and 82.3% (2018) are high by international comparison, but the problem is significantly reduced at the moment by relatively favourable funding terms. However, if the ECB continues to systematically purchase government bonds as expected in 2018, interest rates throughout Europe would be affected and a general increase of around 0.5 percentage points could be expected.
Although the reform of the Austrian banking sector is likely to still be incomplete, a number of concrete steps that were taken in 2016, such as the HETA resolution, have reduced the uncertainty for coming years.
The Austrian Association of Insurance Companies (VVO) is predicting that Austrian premium volume will record another small increase of 0.3% to reach EUR 17.1 billion in 2017. An increase of 1.7% is forecast in the property and casualty area, while personal insurance is expected to decline by 0.9%. When single premium business is excluded, pre miums are expected to increase by 1.4% in 2017.