Country Forecast Austria November 2012 Updater

Country Forecast Austria November 2012 Updater

Overview

The Economist Intelligence Unit believes that the current coalition of the Social Democratic Party (SPÖ) and the Austrian People's Party (ÖVP) will continue until the next election in 2013. Our current forecast is that a new grand coalition with the support of the Greens is then most likely to be formed. The largest opposition party, the right-wing Freedom Party (FPÖ), is considered too extreme to join the government; and we think it unlikely that any of the current government parties reach an agreement on euro zone policies with the new anti-euro party under Frank Stronach. Our budget forecast is that the deficit will shrink from estimated 2.5% in 2012 to 0.3% in 2017. We expect real GDP growth to slow to 0.5% in 2012 and 0.9% in 2013. The banking sector could be vulnerable to the euro crisis through exposure to central and eastern Europe, but the government would be prepared to protect it. A break-up of the euro zone represents a significant downside risk of recession to our forecast.

Key changes from last month

Political outlook

Internal struggles emerged at the SPÖ party convention in mid-October as the federal chancellor, Werner Faymann, was re-elected as party chair with only 83% of the vote, a historical low.

Frank Stronach officially launched his new party and unveiled details of its economically liberal and Eurosceptic programme.

Economic policy outlook

The budget proposal expects to cut expenditure by 1.9% in 2013. Interest payments on debt will be greatly reduced in 2013 by lower interest rates.

Economic forecast

Inflation jumped by 0.5 percentage points on the back of high oil prices between August and September, to 2.8% (EU harmonised measure; 2.7% national measure). This caused us to revise up our 2012 estimate to 2.4%.

Unemployment fell by 0.1 percentage points month on month in August, but we do not expect a trend fall and maintain our estimate at 4.4% for 2012.

Please Note: Due to the Nature of This Report The Toc is Not Available