Country Forecast Austria September 2017 Updater

Country Forecast Austria September 2017 Updater

  • September 2017 •
  • Report ID: 5096358 •
  • Format: PDF


  • The grand coalition of the centre-right Austrian People's Party (ÖVP) and the centre-left Social Democratic Party (SPÖ) fell apart in May 2017 following the resignation of the ÖVP leader. An early election will be held on October 15th.
  • The popularity of the ÖVP new leader, the young minister of foreign affairs, Sebastian Kurz, propelled his party into first place in the polls. The Economist Intelligence Unit expects the ÖVP to win the largest vote share. The most likely coalition to emerge is one that is led by the ÖVP and includes the FPÖ, although negotiations to form one could be fraught.
  • The inclusion of the FPÖ in the government would not lead to similar EU sanctions as in 2000, when the party was last part of a coalition, owing largely to the normalisation of the far right in Europe since then.
  • We expect any new government to focus on integration and immigration policy, and to attempt to reduce the large tax wedge and introduce some additional flexibility in labour and product markets. However, low government cohesion is likely to lead to limited progress.
  • The government budget is forecast to remain in deficit, albeit well within the EU-mandated limit of 3% of GDP, throughout the forecast period (2017-21), as the fiscal consolidation process is likely to be restrained by limited government cohesion and effectiveness. The public debt/GDP ratio will fall gradually.
  • After several years of underperformance compared with its regional peers, the economy has performed relatively strongly since the start of 2016, growing by 1.6% in 2016. We forecast an acceleration of growth this year, to an upwardly revised 2.5%, and that growth will moderate to 1.6% on average in 2018-21.
  • Consumer price inflation (EU harmonised) will continue to exceed the euro zone average in 2017-21, driven by structural domestic factors including higher unit wage costs and more regulated markets. Annual inflation averaged 1% in 2016, up from 0.8% in 2015, and we forecast an annual average of 2% in 2017-21.
  • In 2016 the current-account surplus decreased slightly, to 1.7% of GDP. We forecast that it will average about 2.5% in the coming years as a weakening trade balance is offset by strong tourism receipts.






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