Country Report Austria October 2009

Summary

The current "grand coalition" between the Social Democratic Party (SPO) and the Austrian People's Party (OVP) has been and should continue to be characterised by more co-operation than the previous one.
The return of social partners to the government indicates a move back towards the traditional consensual approach that dominated politics in Austria up until 2000.
The Freedom Party (FPO) is likely to remain a significant force, as the third-largest party after the two coalition partners, but its controversial rhetoric makes its incorporation into a coalition unpopular in Austria and abroad.
The government's short-term focus is to help consumers and businesses weather the economic downturn and to continue to take measures to shore up the banking sector.
Given its rapidly rising budget deficit and levels of public debt, the Economist Intelligence Unit expects the government to unwind its fiscal stimulus measures during 2010, to pave the way for austerity measures in 2011.
After falling by an estimated 3.5% in 2009, we expect GDP to return to moderate growth of 0.5% in 2010 and 1.1% in 2011 as domestic and foreign demand recover sluggishly.

The OVP emerged as the largest party in the provincial elections held in Vorarlberg on September 20th and in Upper Austria on September 27th. The SPO performed poorly in both elections.
Speculation about the next Austrian EU commissioner has intensified in recent months. The chancellor and vice-chancellor have agreed the OVP will choose the candidate, and we expect Benito Ferrero-Waldner to fill the role.
Austria was removed from the OECD's grey list after parliament passed new legislation allowing the bank secrecy law to be lifted when there are concrete suspicions that an individual has violated the tax laws of a foreign country.
On August 28th the European Commission finally gave the green light for the takeover of Austrian Airlines (AUA) by a Germany airline, Lufthansa.
On September 10th the Austro-Canadian Magna group and Sberbank of Russia came to an agreement with General Motors (GM) to assume a 55% stake in Opel (Magna and Sberbank will each control 27.5% of the shares).
Retail sales returned to growth during the second quarter of 2009, underpinned by high real wage growth, low inflation and improving levels of consumer confidence.