Austria: Risk Assessment
Country Rating1
Rating: A2
Business Climate Rating1
Rating: A1
Risk Assessment2
On-going recovery
In the first quarter of the year, the economy grew 1% compared to the 2010 fourth quarter. And compared to the first quarter last year the economy even surged as much as 4%, doubtless hitting a peak. The economy will likely initiate a moderate slowdown in the second half this year amid a less propitious external environment. GDP growth is nonetheless expected to remain strong.
Exports remain the primary growth engine
Austria has benefited from its close commercial and industrial ties to its dynamic neighbor Germany. Via the integration of Austrian products into German exports, Austria has benefited from the dynamism of demand from emerging countries. Despite the slowdown expected in foreign demand, exports will continue their good growth performance.
The buoyancy of sales abroad has prompted companies to resume investing
The production capacity utilization rate climbed back to 86% this past April. And the average cash flow-to-capital expenditures ratio improved to 100%. Not surprisingly, capital goods purchases are increasing once again in industry. Spending on construction, however, has been flat.
Household consumption continues to trend up very moderately
Real income per capita declined this year amid a surge of inflation. The domestic price inflation reflects the increases in prices for raw material and energy as well as in indirect taxes and rent. Wage increases, meanwhile, have been moderate. The decline in unemployment and the creation of jobs could slow.
The fiscal context has remained relatively restrictive
In the wake of statistical adjustments intended to integrate investment in railroad infrastructure, operating costs of regional hospitals, and costs associated with the KA Finanz defeasance structure, the public debt and deficit increased, albeit remaining at sustainable levels. In this context, a modest fiscal adjustment plan underpinned by an agreement between the Federation, federal states, and local communities was adopted late last year. It essentially calls for the institution of a levy on banks and higher taxes on cigarettes, fuel, and airplane tickets.
Although corporate profitability has been improving, the number of companies in bankruptcy and the extent of their liabilities at the end of the first quarter this year exceeded pre-crisis levels
Corporate profitability has benefited from the fact gains in labor productivity have been growing at a faster pace than wages. It has nonetheless yet to recover to pre-crisis levels. This doubtless explains why the number of bankruptcies and the extent of the outstanding liabilities associated with them were still above pre-crisis levels when the year began.
Strengths
- Close historical, geographic and economic ties with Central and Eastern Europe
- Location at the heart of Europe
- Competitive manufactured products for export
- Significant tourist trade potential
- Limited household and corporate debt
- Low unemployment rate
- Well-positioned research & development
Weaknesses
- High specialization in automotive, machine tool and construction materials industries
- Heavily dependent on exports to Germany and Central Europe
- Banking sector sensitive to the economic outlook in Central and Eastern Europe (loans outstanding in those regions represent 70% of GDP)
- High senior unemployment rate