Country Report Austria November 2009

Outlook for 2010-11

• 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 be prepared to take measures to shore up the banking sector.
• Given the government's rapidly rising budget deficit and levels of public debt, the Economist Intelligence Unit expects it to unwind its fiscal stimulus measures 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 0.8% in 2010 and 1.3% in 2011 as domestic and foreign demand recover sluggishly.

Monthly review

• The Social Democrats' poor performance in the provincial elections in Vorarlberg and Upper Austria in September 2009 prompted the party to convene a series of meetings to identify ways to revamp its image.
• On October 13th the governor of Lower Austria, Erwin Proll (OVP), announced his decision not to stand as a candidate in the presidential elections that are due to be held in April 2010.
• After months of deliberation, the coalition partners finally agreed to nominate the minister of science and Vienna OVP leader, Johannes Hahn, as the next Austrian EU commissioner.
• In a speech on October 14th, the minister of finance, Josef Proll (OVP), highlighted the need to rein in Austria's burgeoning budget deficit by generating savings of at least €12bn per year between 2011 and 2013.
• The Austrian labour market service (AMS) announced that it will pay unemployed people a bonus for pursuing a course longer than three months.
• The Ministry of Finance is planning a programme to issue export guarantees of €2bn-3bn in an attempt to boost Austria's export sector.
• The decline in the manufacturing sector decelerated in May-July 2009.