“Austerity package needed” – IHS alert: Economy falling further behind

For comparison, economic growth in China is expected to be four percent this year, and 3.4 percent in Romania and three percent in Poland over the next four years (see graph).

Austria, on the other hand, is at the bottom of the ranking. In this comparison, only Germany with 0.9 percent and Japan with 0.7 percent have lower economic growth. According to IHS boss Holger Bonin, Austria will probably not “turn on the growth turbo” in the coming years.

The main reason why we are falling behind is the persistent lack of investment by Austrian companies, which is both a consequence and a cause of the weak economy. Companies are putting the brakes on investment due to geopolitical and economic uncertainties. Construction investment is particularly weak here.

In any case, we are still far from ‘normal’ growth: in the comparable period from 2014 to 2018 – so before the corona pandemic, the inflation shock and the war in Ukraine – annual GDP growth was still 1.7 percent. According to Bonin, however, we will lag behind both the EU average and the development of the global economy in the near future.

Thanks to the KV increases, people finally have more in their pockets
Economic growth is still driven by private consumption: people in Germany are spending more again because wages have risen after the KV negotiations. The population is benefiting from the increase in tax brackets. Due to the partial abolition of the cold progression, there is also more money left on the stock market.

In addition, inflation is finally coming down and is approaching the target of two percent: according to IHS, it will reach 2.2 percent in 2028. The outlook for the labor market is also slightly better: unemployment is expected to fall from 6.9 percent this year to 5.8 percent in 2028.

Government budget developments give “reason for concern”
“The development of government budgets is a cause for concern,” says Bonin. To compensate for inflation, the government has used the watering can too often and “has not always spent money in the right way. Much of it was not financed soundly.”

The result: “This year Austria is at three percent of the deficit ceiling and nothing will probably change in the coming years. “However, something should change because Austria is threatened with a blue letter from Brussels,” warns the economic researcher.

Downside risks for the Austrian economy are increasing
In addition, there are currently more downside risks for Austria, such as a further escalation of the war in Ukraine or trade wars between the EU and China. Bonin: “Each of these factors could put pressure on global trade and lead to a further increase in energy prices.”

The economic researcher recommends that politicians “spark the growth turbo or at least shift up a few gears.” Three measures are important, but none are popular:

1. We need one soon Savings package“, says Bonin. Two to four billion euros per year should be saved to ‘create room for sensible investments’. The budget should be looked at more intensively.
2. “There is also a need for efficiency Tax reform“, says Bonin, adding: “The aim must be to reduce the high pressure on the labour factor in Austria.” The expert proposes to massively increase the tax brackets for low incomes, so that the incentive to work increases. Bonin: “For us, the tax rate of 40 percent applies from an annual income of 33,000 euros. In Germany, it is 42 percent, but this only applies from 66,000 euros, so twice as much.” A reform could be co-financed through higher taxes on alcohol or cigarettes.
3. We need one Skilled workers offensive“, says Bonin. The lack of workers is already a hindrance to the economy. An important step in which Austria is also a latecomer is the expansion of childcare. In addition, the effective retirement age must be increased, for example by higher deductions from corridor pensions. In addition, the target group of immigrants must be better integrated into the labor market. Bonin: “The German model shows that measurable integration successes can be achieved among refugees, even in serious cases.”