Austria

Politics:

• Analysis

  Austria politics: Quick View - Minister of defence becomes SPÖ general mana

  Event

  The Austrian minister of defence, Norbert Darabos, stepped down from his post on March 5th to become general manager of the Social Democratic Party (SPÖ).

  Analysis

  Mr Darabos' resignation comes at the request of the federal chancellor and SPÖ party chairman, Werner Faymann, who is seeking to strengthen his party's position in the run-up to the September general election. Mr Darabos is regarded as a capable campaign manager who has successfully engineered previous national campaigns, including Heinz Fischer's successful bid for the Austrian presidency. Mr Darabos' position as defence minister had weakened in recent months, after the Social Democrats' proposal to reform the Austrian armed forces from a conscription service to a professional force failed at a referendum in January. In his new position at the SPÖ headquarters, Mr Darabos will share his responsibilities as general manager with Laura Rudas. Mr Darabos' predecessor in the role, Günther Kräuter, will assume duties with the Austrian ombudsman. Gerald Klug (SPÖ), a less-known member of the Federal Council (the upper house of parliament representing the states) from Styria, will succeed Mr Darabos in leading the Ministry of Defence.

  Although Mr Faymann's personnel decisions were largely unopposed in his party, the timing of the change has been criticised because of concern that publicity on the issue distracts from the SPÖ's recent success at the state election in Carinthia, where it came in as the strongest party. We expect the SPÖ to continue battling with a trend loss of support to smaller and new parties, especially the Greens. However, this trend affects all three of the large established parties-the SPÖ, the Austrian People's Party (ÖVP) and the Freedom Party (FPÖ)-with the ÖVP and FPÖ losing to the new anti-euro party Team Stronach. The SPÖ's recent successes and the impact of the personnel change may therefore allow it to come in relatively stronger than the ÖVP and FPÖ at the September general election.

  March 07, 2013

• Background

  Austria: Key figures

  Werner Faymann (SPÖ)

  The federal chancellor and leader of the Social Democratic Party (SPÖ), Mr Faymann moved up through the ranks of the party in Vienna. Unlike his predecessor, Alfred Gusenbauer, Mr Faymann is widely considered to be a charismatic leader. He enjoys the support of Michael Häupl, the powerful mayor of Vienna, and of the trade unions, as he has worked towards strengthening the role of the social partners in the government and party. Mr Faymann also enjoys the long-standing support of the Kronenzeitung, Austria's most widely circulated daily paper. He is expected to lead the SPÖ at the next general election in 2013.

  Michael Spindelegger (ÖVP)

  Mr Spindelegger has served as minister of foreign affairs since December 2008 and succeeded Josef Pröll as vice-chancellor and leader of the Austrian People's Party (ÖVP) in May 2011. At 42 years of age, Mr Spindelegger is considered a consensus-oriented, moderate conservative. He enjoys the support of Erwin Pröll, the powerful governor of Lower Austria who is widely considered a "kingmaker" in the ÖVP. He also has the backing of the Austrian Workers and Employees Federation (ÖAAB), which is historically close to the ÖVP. The Economist Intelligence Unit expects Mr Spindelegger to lead the party into the next general election as the ÖVP candidate for chancellor.

  Heinz-Christian Strache (FPÖ)

  The charismatic leader of the right-wing Freedom Party (FPÖ), Mr Strache has positioned his party as a more radical opposition than before he took over the leadership in 2005. He has focused the party's agenda on a firm anti-EU, anti-immigration, and law and order stance. The FPÖ is currently the largest political party in Austria by voter support-29% in opinion polls in May 2012-and has thus for the first time overtaken the SPÖ and ÖVP. We expect the FPÖ to remain the leading opposition party in the forecast period and to position itself as a serious challenger to the grand coalition parties at the general election in 2013. However, because of the FPÖ's often radical right-wing views, the major parties are unlikely to agree to form an official government coalition with it after the next election.

  Eva Glawischnig (Greens)

  Ms Glawischnig has been the leader of the Greens since October 2008 and has struggled with both her party's performance at the polls and internal disagreements. Some have accused Ms Glawischnig of being too feminist in her leadership, for example by nominating female candidates for office at the expense of experienced and popular male colleagues, which hurt the party at polls. The Greens have been going through a difficult period and we do not expect significant gains during the forecast period. The party's environmental agenda has received less attention during the recession in 2009 and the current economic uncertainty coming from the euro zone crisis. The party has managed, however, to enter coalitions with the SPÖ as junior partner, such as in the municipal government in Vienna.

  June 26, 2012

• Structure

  Austria: Political structure

  Official name

  Republic of Austria

  Form of state

  Federal republic of nine states

  Legal system

  Based on constitution of 1920 as amended in 1929

  National legislature

  Bicameral; National Council (Nationalrat) of 183 members elected for a four-year term, with seats distributed first among 43 constituencies, then among the nine states and the remaining seats at federal level; this guarantees both fair regional and fully proportional representation. Federal Council (Bundesrat) of 62 members elected by provincial parliaments

  Electoral system

  Universal direct suffrage over the age of 16 since 2007 (down from 18)

  National elections

  Last election on September 28th 2008; next election due by September 2013

  Head of state

  President, directly elected for a maximum of two six-year terms, with no executive powers in peacetime. Heinz Fischer was elected for a second term in April 2010. He succeeded Thomas Klestil, who had served as president between 1992 and 2004.

  State legislatures

  Nine provincial parliaments, each of which appoints its own provincial governor

  National government

  Council of Ministers headed by a federal chancellor appointed by the president. Currently, a coalition government comprising the Social Democratic Party and the Austrian People's Party

  Main political parties

  Social Democratic Party (SPÖ; 57 seats); Austrian People's Party (ÖVP; 51 seats); Freedom Party (FPÖ; 34 seats); Alliance for the Future of Austria (BZÖ; 21 seats); Greens (20 seats). Not represented in federal parliament, but at the local level: Liberal Forum (LIF), Austrian Communist Party (KPÖ) and Pirate Party

  Council of ministers

  Federal chancellor: Werner Faymann (SPÖ)

  Vice-chancellor & foreign affairs: Michael Spindelegger (ÖVP)

  Key ministers

  Agriculture, forestry & environment: Nikolaus Berlakovich (ÖVP)

  Defence & sports: Gerald Klug (SPÖ)

  Economy, family & youth: Reinhold Mitterlehner (ÖVP)

  Education & culture: Claudia Schmied (SPÖ)

  Finance: Maria Fekter (ÖVP)

  Health: Alois Stöger (SPÖ)

  Interior: Johanna Mikl-Leitner (ÖVP)

  Justice: Beatrix Karl (ÖVP)

  Labour, social affairs & consumer protection: Rudolf Hundstorfer (SPÖ)

  Science & research: Karlheinz Töchterle (ÖVP)

  Transport, innovation & technology: Doris Bures (SPÖ)

  Women & equal opportunities: Gabriele Heinisch-Hosek (SPÖ)

  Central bank president

  Claus J Raidl

  March 12, 2013

• Outlook

  Austria: Key developments

  Outlook for 2013-17

  • The coalition of the Austrian People's Party (ÖVP) and the Social Democratic Party (SPÖ) is likely to continue until the next election in September 2013, but may not hold an absolute majority thereafter.
  • Support for the Green Party has been growing and it would be a likely third coalition partner with the SPÖ and ÖVP after the election. The extremism of the right-wing Freedom Party (FPÖ) makes it unsuitable as a coalition partner.
  • The party system is expanding to include the new anti-euro, liberal Team Stronach, which has received around 10% of support at recent state elections.
  • Economic policy will aim to bring down the fiscal deficit from 3.1% of GDP in 2012, and to reduce the overall debt burden from around 76% of GDP currently. We expect Austria to progress only slowly towards these goals.
  • The Economist Intelligence Unit expects GDP growth of 1% in 2013, as external demand from major European export markets and consumer confidence improve but remain subdued amid the uncertainty of the euro zone crisis.
  • Our central forecast is that this will be followed by a gradual return to growth averaging 1.8% per year in 2014-17, but there is a significant risk that the crisis in the euro zone will lead to a new recession.
  • Inflation (EU harmonised measure) is forecast to remain elevated at 2.5% in 2013, and gradually to drop to the target of 2% over the forecast period.

  Review

  • Team Stronach won around 10% of the vote at state elections in Carinthia and Lower Austria, reinforcing expectations of a similar result at the general election in September 2013.
  • The three largest established parties-the ÖVP, SPÖ and FPÖ-each lost support at the elections. The loss was particularly stark for the Carinthian Freedom Party (down by around 28 percentage points).
  • The Greens also gained at both regional elections, reinforcing expectations that the party may be included in a grand coalition after the September 2013 election, if the ÖVP and SPÖ fail to achieve an absolute majority.
  • The SPÖ minister of defence, Norbert Darabos, has stepped down to become the new general manager of the SPÖ. He will be succeeded by Gerald Klug, leader of the SPÖ group in the upper house.
  • Consumer price inflation declined to 2.8% (EU harmonised measure, 2.6% national measure) in January, from 2.9% in December.
  • The production index measured by Statistics Austria increased by 2.5% year on year in December, and averaged 1.8% growth over the year.

  March 12, 2013

Economy:

• Background

  Austria: Country fact sheet

  Fact sheet

  Annual data	2011a	Historical averages (%)	2007-11
  Population (m)	8.4	Population growth	0.3
  GDP (US$ bn; market exchange rate)	418.7b	Real GDP growth	0.5
  GDP (US$ bn; purchasing power parity)	354.8b	Real domestic demand growth	0.8
  GDP per head (US$; market exchange rate)	49,572	Inflation	1.8
  GDP per head (US$; purchasing power parity)	42,004	Current-account balance (% of GDP)	3.2
  Exchange rate (av) €:US$	0.72b	FDI inflows ( of GDP)	3.7
  a The Economist Intelligence Unit estimates. b Actual.

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  Background: Austria became an important force in central Europe with the formation of the Habsburg empire in the 15th century and remained so until the disintegration of the Austro-Hungarian empire at the end of the first world war. The Republic of Austria emerged in 1918. In 1938 Austria was incorporated into the German Third Reich. With the departure of the victorious Allied forces in 1955, it regained independence as a neutral country. Austria took great strides in the post-war period to catch up economically with the rest of the developed world and is now one of the most advanced nations. It is a member of the EU and a participant in the economic and monetary union (EMU).

  Political structure: Austria is a federal republic; the head of state is the federal president. The government is led by the federal chancellor. The national parliament has two houses: the Bundesrat (upper house) of 64 members, appointed by state parliaments, and the Nationalrat (lower house), which has 183 members elected by proportional representation. The Nationalrat may be reduced to 165 members. The last general election was held in 2008; the next is due in September 2013.

  Policy issues: The government's priorities are to cut the deficit; maintain low unemployment; raise labour force participation; increase expenditure on research and development; and raise educational standards. The main parties have agreed to fund the budget deficit reduction through expenditure cuts (around 70%) and tax increases (around 30%). The central bank has required banks to raise capital ratios as a defence against a further deterioration of the euro zone crisis.

  Taxation: The top marginal personal income tax rate is 50%. Social security contributions, shared between employers and employees, are high. Corporation tax is levied at a rate of 25%. Dividend and investment income is subject to a withholding tax of 25%. Value-added tax is levied at a standard rate of 20%. A reduced rate of 10% applies for certain goods and services.

  Foreign trade: The value of exported goods rose to EUR124.8bn (US$173.6bn) in 2011, and the goods import bill to EUR131.7bn, leading to a slight trade deficit of EUR6.9bn. The services balance, boosted by tourism receipts, showed a large surplus of EUR13.9bn, offsetting the deficit of EUR2.1bn on current transfers. The income account was roughly balanced, at EUR850m, yielding an overall current-account surplus of 1.9% of GDP (EUR5.7bn)..

  Major exports (2011)	€ bn	Major imports (2011)	€ bn
  Consumer goods	52.7	Consumer goods	50.7
  Investment goods	32.2	Investment goods	27.2
  Intermediate goods	19.9	Raw materials incl fuels	24.6
  Raw materials incl fuels	8.9	Intermediate goods	20.1
  Food & beverages	7.9	Food & beverages	8.3
  Leading markets (2011)	% of total	Leading suppliers (2011)	% of total
  Germany	32.7	Germany	44.2
  Italy	7.9	Italy	7.0
  Switzerland	4.5	Switzerland	5.7
  France	4.3	Netherlands	4.2
  EU27	69.7	EU27	71.3

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  March 11, 2013

• Structure

  Austria: Economic structure

  Data and charts: Annual trends charts

  
  

  

  March 12, 2013

• Outlook

  Austria: Country outlook

  Austria: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: The Economist Intelligence Unit expects the grand coalition of the Social Democratic Party (SPÖ) and the Austrian People's Party (ÖVP) to serve its full term until the next general election in September 2013. The previous SPÖ-ÖVP coalition in 2007-08 was characterised by tense relations between the parties, but the current one has seen more co-operation. The ÖVP and SPÖ successfully agreed a programme of fiscal consolidation involving expenditure cuts and tax rises, and passed details of the austerity package and an anti-corruption bill in 2012. The coalition parties should continue their co-operation in the face of the economic challenges from the euro zone recession but may still be intermittently distracted by investigations into corruption that involve the large political parties.

  ELECTION WATCH: Support for the three largest parties (the SPÖ, ÖVP and the Freedom Party, FPÖ) fluctuated significantly between around 20% and 30% in 2012; the SPÖ is now the largest party, with close to 30% of the vote, and the other two are closer to 20%. Together, the three parties as a group are losing support to the new Team Stronach and the Greens, which could mean that a grand coalition of the SPÖ and ÖVP is unable to win an absolute majority at the 2013 election and required to include a third coalition partner.

  INTERNATIONAL RELATIONS: The government is expected to remain moderately pro-EU, despite a significant strand of Euroscepticism among the electorate. Austria contributes around 2.8% of the European Financial Stability Facility (EFSF) and will contribute 3.9% or EUR19.5bn (US$24bn) of the European Stability Mechanism (ESM). We expect the government to continue working with its EU partners to manage the euro zone crisis, and to accept whatever Germany agrees to in future negotiations. Nonetheless, there is a risk that a new government from 2013 would be strongly influenced by a shift in debate to Team Stronach's Eurosceptic agenda. This could lead to Austria taking a less supportive position regarding its euro zone neighbours and to less co-operation with Germany on finding a solution to the crisis. Foreign policy is also strongly directed towards central and eastern Europe: Austria has been eager for more countries to gain EU membership, given its strong economic ties with the region.

  POLICY TRENDS: During the forecast period, economic policy will be characterised by efforts to stabilise the public finances and support the competitiveness of the Austrian economy, in order to counter weak export demand from its European neighbours. The government has announced measures to support entrepreneurship and to upskill the workforce, which are to be passed before the next election.

  ECONOMIC GROWTH: Real GDP growth decelerated to 0.7% in 2012, from 2.7% in 2011. We forecast a gradual recovery to 1% growth in 2013, as the recession in Austria's main export market, the euro zone, is expected to abate and consumer confidence begins to improve. Subsequently we forecast average growth of 1.8% in 2014-17.

  INFLATION: Consumer price inflation (EU harmonised measure) was relatively strong throughout 2012, coming in at 2.6% (or 2.4% on the national measure). We expect inflation to remain elevated in 2013, at 2.5% on average, although price growth is likely to mellow over the year because of some softening of commodity prices, further weak economic activity, a slowdown in wage growth and base effects. Inflation stood at 2.8% (EU harmonised measure) in January 2013, down from 2.9% in December 2012.

  EXCHANGE RATES: The euro has strengthened since mid-2012 as the debt crisis in the single currency zone has eased and as global risk tolerance has increased. The euro reached US$1.37:EUR1 in late January before retreating to US$1.3:EUR1 in early March. The euro's appreciation will be capped by continuing weakness in euro zone economies, as well as stronger growth in the US. We expect the euro to average US$1.33:EUR1 in 2013 and US$1.28:EUR1 in 2014-17, although there is a significant risk of sharp movements either way. Over the medium term, the possibility of a break-up of the euro zone cannot be discounted.

  EXTERNAL SECTOR: We expect the current-account surplus to average 2.1% of GDP in 2013-17. The trade deficit should fall from around EUR7bn in 2011-12 to EUR2.8bn-4bn in 2013-17, as export demand from European countries recovers, and the services surplus will remain wide (EUR10.4bn-12.9bn) throughout the forecast period.

  March 05, 2013

• Forecast

  Austria: Country forecast summary

  Country forecast overview: Highlights

  • The Economist Intelligence Unit's central forecast is that the grand coalition between the Social Democratic Party (SPÖ) and the Austrian People's Party (ÖVP) will serve its full term until September 2013. Voter support has fluctuated significantly among the largest three parties (the SPÖ, ÖVP and the Freedom Party, FPÖ), and the emergence of new parties such as Team Stronach and the Pirate Party makes the 2013 election outcome highly uncertain. Recent state elections suggest that the Greens and Team Stronach will be the main winners at the next general election, at the expense of the larger parties.
  • The austerity measures narrowed the government budget deficit slightly to 3.1% of GDP in 2012 and the government is expected to continue implementing fiscal consolidation measures throughout the forecast period to bring the deficit and government debt of 76% of GDP in 2012 down gradually. We expect the fiscal deficit to contract to 2.2% of GDP by 2017.
  • The government will also seek to enhance business competitiveness by supporting entrepreneurship and education. A longer-term goal is to encourage research and development (R&D) and innovation to reduce Austria's reliance on manufacturing and develop a high-tech, knowledge-based economy.
  • Real GDP growth decelerated during 2012 to an estimated 0.7%. We forecast mellow growth of 1% in 2013, as the euro zone crisis will continue to dampen demand for Austrian exports, bank lending will be constrained by tighter capital requirements and consumer confidence is subdued. Nonetheless, Austria's performance will be well above the euro zone average. Growth in Austria should pick up to an average of 1.8% in 2014-17.
  • Austria's prudent economic policies and some continued export demand from its central and east European neighbours will allow the unemployment rate to remain among the lowest in the euro zone. It is expected to fall from 4.4% in 2012 to 3.9% at the end of the forecast period.
  • Our forecast is subject to a downside risk of euro zone break-up, which would lead to a deeper recession in Europe and cause a contraction in Austria over the near term. The government would be expected to bail out its banking sector should banks experience large losses in the country's central and east European neighbours such as Hungary, but we do not think major intervention will be necessary unless the crisis deteriorates sharply.

  

  March 11, 2013

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Country Briefing

Land area

83,871 sq km

Population

8,404,252 (2011)

Main towns

Population in '000 (2011):

 Vienna (capital): 1,714

 Graz: 261

 Linz: 189

 Salzburg: 148

 Innsbruck: 120

 Klagenfurt: 94

Climate

Temperate

Weather in Vienna (altitude 200 metres)

Hottest months, July/August, average 18-24°C in 2006 (minimum 10°C, maximum 35°C); coldest months, December/January, average -1 to -4°C (minimum -16°C, maximum 11°C); driest month (2006), October, 15 mm (average monthly rainfall); wettest month (2006), August, 207 mm

Language

German

Weights and measures

Metric system

Currency

Euro (€) = 100 cents

Time

1 hour ahead of GMT

Public holidays

January 1st (New Year's Day), January 6th (Epiphany), Easter Monday, May 1st (Labour Day), Ascension, Whit Monday, Corpus Christi, Assumption of the Blessed Virgin Mary, October 26th (National Day), November 1st (All Saints Day), December 8th (Immaculate Conception), December 25th and December 26th (Christmas)

January 08, 2013