Country Forecast Austria August 2018 Updater

Country Forecast Austria August 2018 Updater

  • August 2018 •
  • Report ID: 1698023 •
  • Format: PDF


  • An early election in October 2017 was won by the centre-right Austrian People's Party (ÖVP), led by the young minister of foreign affairs, Sebastian Kurz, who has since become chancellor at the head of a majority coalition government of the ÖVP and the far-right Freedom Party (FPÖ). The Economist Intelligence Unit expects the government to last a full five-year term.
  • The inclusion of the FPÖ in the government will not lead to significant tensions with other EU member states as it did in 2000, when the party was last part of a coalition. This is largely because of the normalisation of the far right in Europe since then.
  • The new government will focus on integration and immigration policy, including by taking a prominent role on this issue within the EU. It will attempt to reduce the large tax wedge and introduce some additional flexibility in labour and product markets. Significant structural reforms are unlikely, owing to low government cohesion.
  • We forecast that the government budget will remain in deficit-albeit well within the EU-mandated limit of 3% of GDP-throughout the 2018-22 forecast period, as the fiscal consolidation process is likely to be restrained by limited government cohesion and effectiveness. The public debt/GDP ratio will fall gradually, to 67.2% by 2022, from 78.2% in 2017.
  • After several years of underperformance compared with its regional peers, the economy has performed relatively strongly since the start of 2016, growing by 3.1% in 2017. We forecast a continuation of strong growth this year, at 2.9%, and a moderation to 1.6% on average in 2019-22.
  • Consumer price inflation (EU harmonised) will continue to exceed the euro zone average in 2018-22, driven by structural domestic factors, including higher unit wage costs and more regulated markets. We expect annual average EU harmonised inflation of 2% in 2018-22.
  • The current-account surplus has been relatively stable in recent years. Although we expect small changes in the composition of the surplus, we expect it to remain broadly stable, at 1.6% of GDP on average in 2018-22, driven mainly by a strong surplus on the services balance, supported by tourism inflows.


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