Abstract
IMF Country Report No. 21/203
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IMF Country Report No. 21/203
AUSTRIA
2021 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; STAFF SUPPLEMENTARY INFORMATION; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR AUSTRIA
September 2021
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 2021 Article IV consultation with Austria, the following documents have been released and are included in this package:
A Press Release summarizing the views of the Executive Board as expressed during its August 30, 2021 consideration of the staff report that concluded the Article IV consultation with Austria.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on August 30, 2021, following discussions that ended on June 16, 2021, 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 August 3, 2021
An Informational Annex prepared by the IMF staff.
A Staff Supplementary Information updating information on recent developments.
A Statement by the Executive Director for Austria.
The documents listed below have been or will be separately released.
Selected Issues
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
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© 2021 International Monetary Fund
Press Release
PR21/255
IMF Executive Board Concludes 2021 Article IV Consultation with Austria
FOR IMMEDIATE RELEASE
Washington, DC – September 8, 2021: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Austria.
Austria entered the COVID-19 pandemic from a robust economic position with significant policy space. Nonetheless, the pandemic significantly impaired the economy as several lockdowns were implemented to help contain the spread of the virus. Real GDP declined by 6.3 percent in 2020 and contracted further in early 2021, driven by a sharp deceleration of private investment and consumption as well as a muted winter tourism season. The swift and sizable policy response to the pandemic has been effective in saving lives, protecting vulnerable households, and supporting workers and firms.
The economy is set to recover at a moderate pace in 2021, with growth projected at 3.5 percent. Economic activity is expected to accelerate from 2021Q2 as lockdowns were progressively lifted alongside fast progress in vaccinations. Growth is expected to accelerate to 4.5 percent in 2022 before stabilizing at its potential of around 1¾ percent in the medium term. Nonetheless, medium-term output is expected to remain below the pre-crisis trend. The outlook is subject to unusually high uncertainty, with near-term risks stemming from the unpredictable development of the pandemic, particularly from the threat of the delta variant and efficacy and extent of vaccinations.
Executive Board Assessment2
Executive Directors agreed with the thrust of the staff appraisal. They welcomed Austria’s swift and effective policy response to the pandemic, but noted that the economic outlook appeared challenging, with the real GDP level likely to remain below its pre-COVID trend over the medium term.
Directors concurred that fiscal policy this year struck an appropriate balance between supporting hard-hit sectors and jump starting the economy. They agreed that fiscal policy should remain flexible given high uncertainty regarding pandemic developments. Directors commended Austria’s post-crisis priorities on digital and green transformation, and most Directors suggested that, as fiscal space remains, the authorities could consider additional spending to secure a faster and more sustainable recovery. In particular, measures could include further facilitating labor reallocation, reducing Austria’s high labor tax wedge, rehabilitating corporate balance sheets, and further fostering the green and digital transition, as well as mitigating economic scarring. A few Directors, however, considered that further stimulus to the recovering economy may not be warranted, particularly amid inflationary pressures driven by supply-side constraints.
Directors commended the resilience of the banking sector during the pandemic. Nonetheless, they stressed that emerging corporate vulnerabilities and housing market risks should be addressed to preserve financial sector stability. They recommended close monitoring of the impact of the pandemic on corporate and bank balance sheets, providing solvency support to viable firms, and imposing binding lending limits to contain housing market risks. Directors also encouraged swift implementation of the recommendations to strengthen supervision of less significant financial institutions and continued effort on improving effectiveness of the AML/CFT framework.
Directors noted the uneven impact of the pandemic across workers and regions notwithstanding effective utilization of the short-term work scheme. They recommended more targeted measures for those disproportionately affected by the crisis, and job creation measures to support the reallocation of workers and to address regional and skill mismatches such as language training, hiring subsidies, and relocation grants.
Directors welcomed the authorities’ ambitious plans for a green transformation, and noted that additional measures are necessary to bring Austria closer to its climate goals. They recommended a phased introduction of carbon prices, using the revenue raised to compensate low-income and vulnerable households and to support other key reform priorities. Directors also encouraged adopting green budgeting practices to integrate climate considerations into the government’s fiscal frameworks.
Austria: Selected Economic Indicators, 2018–22
Households and non-financial corporations. Exchange rate adjusted.
Austria: Selected Economic Indicators, 2018–22
| 2018 | 2019 | 2020 | 2021 | 2022 | ||||
|---|---|---|---|---|---|---|---|---|
| Proj. | Proj. | |||||||
| Output | ||||||||
| Real GDP growth (%) | 2.6 | 1.4 | -6.3 | 3.5 | 4.5 | |||
| Employment | ||||||||
| Unemployment | ||||||||
| (Harmonized) (%) | 4.9 | 4.5 | 5.3 | 5.5 | 5.3 | |||
| Prices | ||||||||
| Inflation (%) | 2.1 | 1.5 | 1.4 | 2.1 | 1.8 | |||
| General government finances | ||||||||
| Revenue (% of GDP) | 48.9 | 49.2 | 49.0 | 48.6 | 48.2 | |||
| Expenditure (% of GDP) | 48.7 | 48.6 | 57.9 | 54.7 | 51.6 | |||
| Fiscal balance (% of GDP) | 0.2 | 0.6 | -8.9 | -6.2 | -3.3 | |||
| Public debt (% of GDP) | 74.0 | 70.5 | 83.9 | 85.3 | 82.6 | |||
| Money and credit | ||||||||
| Broad money (% change) | 8.0 | 4.6 | 9.7 | 4.7 | 4.3 | |||
| Credit to the private sector | ||||||||
| (% change) 1/ | 4.8 | 5.1 | 3.7 | 2.6 | 3.3 | |||
| Balance of payments | ||||||||
| Current account (% of GDP) | 1.3 | 2.8 | 2.5 | 2.0 | 2.3 | |||
| FDI (% of GDP) | 0.5 | 1.7 | 2.8 | 1.7 | 1.7 | |||
| Reserves (months of imports) | 1.2 | 1.2 | 1.6 | 2.0 | 1.8 | |||
| External debt (% of GDP) | 149.8 | 153.7 | 164.1 | 167.5 | 145.6 | |||
| Exchange rates | ||||||||
| REER (% change) | 0.8 | -0.7 | -10.4 | … | … | |||
Households and non-financial corporations. Exchange rate adjusted.
Austria: Selected Economic Indicators, 2018–22
| 2018 | 2019 | 2020 | 2021 | 2022 | ||||
|---|---|---|---|---|---|---|---|---|
| Proj. | Proj. | |||||||
| Output | ||||||||
| Real GDP growth (%) | 2.6 | 1.4 | -6.3 | 3.5 | 4.5 | |||
| Employment | ||||||||
| Unemployment | ||||||||
| (Harmonized) (%) | 4.9 | 4.5 | 5.3 | 5.5 | 5.3 | |||
| Prices | ||||||||
| Inflation (%) | 2.1 | 1.5 | 1.4 | 2.1 | 1.8 | |||
| General government finances | ||||||||
| Revenue (% of GDP) | 48.9 | 49.2 | 49.0 | 48.6 | 48.2 | |||
| Expenditure (% of GDP) | 48.7 | 48.6 | 57.9 | 54.7 | 51.6 | |||
| Fiscal balance (% of GDP) | 0.2 | 0.6 | -8.9 | -6.2 | -3.3 | |||
| Public debt (% of GDP) | 74.0 | 70.5 | 83.9 | 85.3 | 82.6 | |||
| Money and credit | ||||||||
| Broad money (% change) | 8.0 | 4.6 | 9.7 | 4.7 | 4.3 | |||
| Credit to the private sector | ||||||||
| (% change) 1/ | 4.8 | 5.1 | 3.7 | 2.6 | 3.3 | |||
| Balance of payments | ||||||||
| Current account (% of GDP) | 1.3 | 2.8 | 2.5 | 2.0 | 2.3 | |||
| FDI (% of GDP) | 0.5 | 1.7 | 2.8 | 1.7 | 1.7 | |||
| Reserves (months of imports) | 1.2 | 1.2 | 1.6 | 2.0 | 1.8 | |||
| External debt (% of GDP) | 149.8 | 153.7 | 164.1 | 167.5 | 145.6 | |||
| Exchange rates | ||||||||
| REER (% change) | 0.8 | -0.7 | -10.4 | … | … | |||
Households and non-financial corporations. Exchange rate adjusted.
Title Page
AUSTRIA
STAFF REPORT FOR THE 2021 ARTICLE IV CONSULTATION
August 3, 2021
KEY ISSUES
Context and outlook: Austria entered the crisis from a strong position. Prudent policies prior to the pandemic provided significant policy space. Several lockdowns helped contain the virus but significantly impaired the economy. Real GDP contracted by 6.3 percent in 2020 and declined further in early 2021. The 2021 recovery is expected to be modest; the tourism and hospitality sectors will continue to be affected. Over the medium term, growth will accelerate in 2022 and then stabilize at potential, but the output level will remain somewhat below the pre-COVID trend. Uncertainty remains high.
Policy recommendations: Targeted support measures to vulnerable households and the hardest-hit firms should continue while investing in accelerating the recovery. Measures should aim to limit economic scarring, and promote a green, digital, and inclusive recovery, while safeguarding financial stability.
Fiscal policy: Near-term targeted support should be extended as needed if the Pandemic lingers and be gradually withdrawn once the recovery takes hold. Low borrowing costs and a relatively low debt burden provide an opportunity to pursue a more ambitious “comeback” plan, including facilitating labor reallocation, reducing the labor tax wedge, stepping up digitalization, and greening the economy. Further pension system reforms to address the effects of population aging will also be needed in the coming years.
Financial policy: Careful monitoring of credit quality, NPLs, and corporate insolvency should continue. Broad-based corporate liquidity support should gradually be shifted toward solvency support for viable firms to ensure resilient recovery. In line with the FSAP recommendations, development of granular data for commercial real estate, developing tools allowing for borrowing-based limits, and making prudential guidelines for housing lending binding should help address vulnerabilities in the real estate market.
Structural policy: A gradual and phased introduction of carbon taxes, along with revenue compensation measures to vulnerable households would secure a green and inclusive recovery. Labor market policies should support reallocation of workers and reduce regional and skill mismatches. Ensuring universal access to broadband connections, providing digital skill training, and promoting wider use of ICT will help smoothen the digital transformation.
Approved by
Mahmood Pradhan (EUR) and Delia Velculescu (SPR)
The mission took place in a virtual format during May 26 to June 15, 2021. The team comprised Mr. Franks (head), Ms. Hassine, Ms. Patnam, and Ms. Suphaphiphat, with Ms. Sandhu, Ms. Baldev (all EUR), and Ms. Claver (LEG) joining a subset of meetings. The mission met Minister of Finance Blümel, Central Bank Governor Holzmann, and officials from the Chancellery, Ministries of Finance, Labor, Economy and Digitalization, and Climate Change, and with the Financial Market Authority, the banking Deposit Guarantee Fund, private sector representatives, major banks, and think tanks. Mr. Just (OED) joined the meetings. Ms. Sandhu and Ms. Baldev (all EUR) assisted in preparing the report.
Contents
CONTEXT
RECENT DEVELOPMENTS
OUTLOOK AND RISKS
POLICY DISCUSSIONS
A. Fiscal Policy
B. Financial Sector Policies: Addressing Growing Vulnerabilities
C. Structural Policies
STAFF APPRAISAL
BOXES
1. Policy Measures and the Resilience of the Banking Sector During the COVID-19 Crisis
2. The Austrian Deposit Guarantee Schemes
FIGURES
1. Growth Decomposition
2. External and Fiscal Develop
3. Financial Sector Developments
TABLES
1. Discretionary Measures for Emergency and Recovery Support
2. Summary of Economic Indicators, 2018–26
3. Fiscal Accounts, 2018–26
4. Balance of Payments, 2018–26
5. Financial Soundness Indicators, 2014–2020:Q3
ANNEXES
I. Key Policy Measures in Response to the Pandemic
II. External Sector Assessment
III. Risk Assessment Matrix
IV. Public Sector Debt Sustainability Analysis
V. Authorities’ Responses to 2020 FSAP Recommendations
VI. Closing the Climate Gap: A Carbon Tax Proposal
Annex VI. Closing the Climate Gap: A Carbon Tax Proposal
VII. Previous Article IV Recommendations
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summing sup can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.
