Abstract
Austria’s recession had limited effects on unemployment. Investment declined sharply but consumption helped cushion the recession, supported by tax cuts and various labor market measures together with large increases in real wages. Austria’s fiscal position has weakened significantly in recent years, although to a lesser extent than the euro area average. The authorities’ plan to embark on a decisive fiscal consolidation path is welcomed. They recognized, however, that reducing the share of foreign exchange loans, while providing continued financing to central and southeastern Europe, will be challenging.
1. This statement provides information that has become available since the staff report was circulated to the Executive Board on July 30, 2010. The information does not alter the thrust of the staff appraisal.
2. Supported by a strong contribution of net exports, Austria’s economic growth picked up as expected in the second quarter. Following a flat outturn in the first quarter, real GDP rose by 0.9 percent q-o-q in Q2. Exports accelerated, while gross fixed capital formation continued to contract. Conditions in the labor market further improved over the summer, with the harmonized seasonally-adjusted unemployment rate falling to 3.9 percent in June and vacancies in July up by one third compared with a year ago. Inflation declined to 1.7 percent y-o-y in July from 1.8 percent in June.
3. CEBS stress tests indicated that participating Austrian banks were able to maintain a tier 1 capital ratio well above 6 percent in the stressed scenarios. The results, published in July, were consistent with earlier national tests run by the Austrian central bank.
4. In light of the broad agreement reached in July 2010 by the Group of Governors and Heads of Supervision of the Basel Committee, while Austrian banks will still need to strengthen their capital positions compared with previous (Basel II) requirements, the increase will be more limited than what was implied by the December 2009 proposals. In particular, the Committee will allow some partial recognition of minority interests in core capital. The Governors and Heads of Supervision are expected to finalize the calibration and transition arrangements in September.
5. Reported non performing loans (NPL) of Austrian banks have continued to rise. Erste Bank and Bank Austria reported an increase in their NPL ratios from 6.6 percent and 3.5 percent at the end of 2009 to 7.3 percent and 4.1 percent respectively at the end of June 2010.
6. A Memorandum of Understanding on financial supervision is being concluded with Russia.