Country Report Austria December 2008

Outlook for 2009-10

• The Economist Intelligence Unit believes that the new "grand coalition" between the Social Democratic Party (SPO) and the Austrian People's Party (OVP) will 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.
• Support for the Alliance for the Future of Austria (BZO) will continue to fall throughout the forecast period. However, it is unlikely that the Freedom Party (FPO) and BZO will join forces, with their leaders rejecting a reunification.
• The government will implement a package aimed at boosting consumer purchasing power and will focus on taking measures to shore up liquidity in the banking sector.
• The government is expected to encourage research and development (R&D) and innovation to shift from a traditional to a high-tech, knowledge-based economy with companies excelling in highly specialised, niche areas.
• After growing by an estimated 1.4% in 2008, GDP will contract by 1.1% in 2009, before expanding moderately by 0.3% in 2010.

Monthly review

• On November 23rd the SPO and OVP agreed to revive the "grand coalition", headed by Werner Faymann (SPO) as chancellor and Josef Proll (OVP) as vice-chancellor.
• A number of representatives of social partnerships were appointed as new ministers, indicating a stronger say of the social partners in the new government.
• Stefan Petzner resigned as interim head of the BZO on November 19th under heavy pressure from BZO party officials.
• In the coalition negotiations, the OVP agreed to give up its long-standing goal of achieving a balanced budget in 2010, which, given the rapidly deteriorating economic outlook at home and abroad, had appeared increasingly unfeasible.
• The SPO and OVP agreed on the main points of an income tax reform, to be implemented in 2009, as part of the coalition negotiations.
• Austria's Nationalbank (the central bank) urged commercial banks to take advantage of the government's financial support package before the end of 2008 and to make more credit available to households and businesses.
• GDP growth decelerated from 2.9% year on year in the first quarter to 2.3% in the second quarter and 1.3% in the third quarter.

Source: Country Report