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© 2012 International Monetary Fund
August 2012
IMF Country Report No. 12/251
Austria: 2012 Article IV Consultation—Staff Report; Informational Annex; Statement by the Staff Representative; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Austria
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2012 Article IV consultation with Austria, the following documents have been released and are included in this package:
The staff report for the 2012 Article IV consultation, prepared by a staff team of the IMF, following discussions that ended on July 2, 2012, with the officials of Austria on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on July 31, 2012. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
An Informational Annex, completed on July 31, 2012
Statement by the IMF Staff Representative
A Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its August 27, 2012 discussion of the staff report that concluded the Article IV consultation.
A Statement by the Alternate Executive Director for Austria
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
Copies of this report are available to the public from
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July 31, 2012
AUSTRIA
STAFF REPORT FOR THE 2012 ARTICLE IV CONSULTATION
Key Issues
Context: Austria has relatively strong macroeconomic fundamentals and limited economic slack, but deep ties with the rest of the euro area and the legacy of an overly ambitious eastward financial sector expansion are creating substantial challenges.
Growth outlook and risks: After a strong 2011, a weak external environment is slowing down growth, though buoyant wages should support private consumption. A switch to a more domestic demand-led growth would help reduce imbalances within the euro area. The main risks stem from a further intensification of the crisis in the euro area and its ramifications to Central, Eastern and Southeastern Europe (CESEE).
Fiscal Policy: The new medium-term structural consolidation path strikes an appropriate balance between fiscal discipline and the cyclical needs of the economy, but needs to be locked in by accelerated reforms to contain aging cost. In addition, there are sizeable contingent liabilities from medium-sized bank restructuring.
Financial sector: Recovery in some CESEE credit markets is slower than expected. NPLs are still rising and profitability is subdued, but large banks have strengthened their capital and liquidity positions. Plans to restructure medium-sized banks that received public support need revamping to allow more efficient disposals.
Structural issues: Labor market participation could be increased by reducing the burden on labor from taxes and social security contributions and smoothing high tax wedges. The budgetary impact could be offset by spending cuts or increases in less distortionary taxes, such as real estate, excise, or environmental taxes.
Approved By
Rodrigo Valdés and Tam Bayoumi
Discussions took place in Vienna from June 22 to July 2. The staff team comprised Ms. Detragiache (head), and Messrs. Steinlein, Vandenbussche (all EUR), and Klyuev (RES). Mr. Prader (OED) participated in the discussions. The mission met with Governor Nowotny, Labor Minister Hundstorfer, State Secretary for Finance Schieder, other senior officials, parliamentarians, and social partners, banking sector, and think tank representatives.
Contents
INTRODUCTION
RECENT ECONOMIC DEVELOPMENTS, OUTLOOK, AND RISKS
POLICY DISCUSSIONS
A. Implementing and Anchoring Structural Fiscal Consolidation
B. Managing Financial Sector Risks from Euro Area, CESEE, and Swiss Franc Exposures while Accelerating Medium-Size Bank Restructuring
C. Increasing Growth by Improving Incentives to Work
STAFF APPRAISAL
TABLES
1. Selected Data, 2007–13
2. Medium-Term Macroeconomic Framework, 2007–17
3. Balance of Payments, 2007–17
4. General Government Operations, 2007–17
5. Financial Soundness Indicators for the Banking Sector, 2008–11
6. Authorities’ Response to Past IMF Policy Recommendations
FIGURES
1. Recent Economic Developments
2. External Sector
3. Fiscal Developments and Outlook
4. Banking Sector, 2011
5. Labor Market Indicators in Comparative Perspective
A1. Fiscal Reform Impact
BOXES
1. Risk Assessment Matrix
2. The Authorities Consolidation Program 2012–16
3. Austrian Authorities’ Supervisory Guidance on the Strengthening of the Sustainability of the Business Models of Large Internationally Active Austrian Banks
4. Funding of Austrian Banks’ Subsidiaries and Associated Risks
ANNEXES
I. Financial Sector Performance and Vulnerabilities
II. The New Fiscal Rule Framework
III. Boosting Potential Growth by Expanding Labor Supply
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July 31, 2012
AUSTRIA
STAFF REPORT FOR THE 2012 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX
Prepared By
European Department
Contents
FUND RELATIONS
STATISTICAL ISSUES
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Public Information Notice (PIN) No. 12/102
FOR IMMEDIATE RELEASE
August 31, 2012
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