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Austria - Economy

Austria has a well-developed social market economy with a high standard of living and close ties to other EU economies, especially Germany's. Until the late 1980s, the government and its state-owned industry conglomerates played a key role in the Austrian economy. However, state-owned firms began to operate largely as private businesses starting in the early 1990s--a trend which accelerated between 2000 and 2006, as the government wholly or partially privatized many of these firms. Since 2006, "grand coalition" governments have not reversed privatizations but have also not undertaken further privatization measures.

The international financial crisis and global economic downturn in 2008 led to a deep recession that persisted until the third quarter of 2009. Austrian GDP contracted by 3.9% in 2009, partially recovering in 2010 with growth of 2.1%. The unemployment rate of 4.4% in 2010 was the lowest in the EU-27 (EU-27 average: 9.6%). Crisis measures and an income tax reform pushed the budget deficit from about 0.4% of GDP before the financial crisis to 4.6% of GDP in 2010. The consolidated public sector debt rose from 62.5% of GDP in 2008 to 72.3% in 2010, due primarily to new methods of accounting for publicly-guaranteed debt. The government’s 2012-2015 medium-term budget framework stipulates legally binding spending limits to reduce the total public sector deficit from about 3.9% of GDP in 2011 to 2.0% of GDP in 2015. Organization for Economic Cooperation and Development (OECD) and International Monetary Fund (IMF) experts have called for structural reforms in areas such as sustainability of pensions, ensuring long-term care for Austria’s aging population, restructuring public sector salaries, streamlining administration, and improving the K-12 and university education systems.

Austria’s economy benefited greatly from its entry into the EU in 1995, the introduction of the Euro in 2002, and its growing commercial relations--especially in the banking and insurance sectors--in central, eastern, and southeastern Europe. However, this interdependency has made Austria vulnerable to financial instability in the region. Some of Austria's largest banks have required government support--including in two instances, nationalization--to avoid potential insolvency and wider regional contagion. Several banks have, however, applied for early repayment of the government funds. In the medium term, Austrian banks will need additional capital to meet the terms of the Basel III accord. Even with an improved economic outlook, Austria will need to continue restructuring, emphasizing knowledge-based sectors of the economy while encouraging greater labor flexibility and greater labor participation to offset such problems as structural unemployment, an aging population, and a low fertility rate.

Austria has a strong but slightly shrinking labor movement. The Austrian Trade Union Federation (OGB) comprises constituent unions with a total membership of about 1.2 million--about 35% of the country's wage and salary earners. The OGB has always pursued a moderate, consensus-oriented wage policy, cooperating with industry, agriculture, and the government on a broad range of social and economic issues in what is known as Austria's "social partnership." A 2006 scandal involving an OGB-owned bank caused the OGB to lose much of its political influence and it is still trying to recover.

Austrian farms, like those of other west European mountainous countries, are small and fragmented, and production is relatively expensive. Since Austria joined the EU in 1995, the Austrian agricultural sector has been undergoing substantial reform under the EU's common agricultural policy (CAP). Although Austrian farmers provide about 85% of domestic food requirements, the contribution of agriculture, forestry, and fisheries to gross domestic product (GDP) has consistently declined over the last decades to just 1.5% (2010).

Trade with other EU-27 countries accounts for almost 72% of Austrian imports and exports (2010). Expanding trade and investment in the new EU members of central and eastern Europe represent a major pillar of Austrian economic policy. Austrian firms have sizable investments there and continue to move labor-intensive, low-tech production to these countries. About one-half of Austria's foreign direct investment (FDI) is concentrated in the countries of central, eastern, and southeastern Europe. Many western European and international companies have located their central/eastern European headquarters in Austria.

Total trade with the United States in 2010 reached $10.9 billion. Exports from the United States to Austria amounted to $4.3 billion. U.S. imports from Austria in 2010 were $6.6 billion. The United States is Austria's sixth-largest trading partner worldwide. Approximately 330 U.S. firms hold investments in Austria. The stock of U.S. foreign direct investment in Austria is an estimated $15.4 billion (2009), which represents about 10.4% of FDI in Austria and makes the U.S. the third-largest foreign investor in Austria.