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With around 90 percent of the average retirement income received from public pension entitlements, the Austrian pension system is very reliant on the first pillar. Occupational pensions are primarily offered through pension funds and insurance companies. Direct commitments are an alternative vehicle, but their usage stagnates. The option for defined contribution (DC) plans with favourable tax treatment offered either by pension funds or insurance companies boosted the prevalence of occupational pensions in Austria. While occupational pensions have become more popular over time, low interest rates and a high liquidity preference dampened demand for individual life insurance contracts. Over the years 2002 through 2022, the performance of pension funds in real net terms has been positive, with an annualised average return of 0.3 percent before tax. The life insurance industry followed a distinctly more conservative investment policy and achieved an average annual net real return before tax of 1.4 percent.

This article reports on the latest update of Austria's effective exchange rate indices, which aggregate bilateral exchange rates and relative prices or costs into indicators of Austria's short- to medium-term international competitive position. The weighting scheme on which the indicators are based uses bilateral trade data for Austria's 55 most important trading partners. With the latest update, the three-year averaging period was moved forward to 2016-2018. The main results are as follows: Based on the recalculated country weights, we confirm the preliminary finding of a medium-term worsening of Austria's competitive position, although alternative price indices would appear to provide conflicting signals. In particular, measures based on producer prices and unit labour costs indicate competitiveness gains, while the HICP/CPI-based index shows marked losses. These diverging signals, however, merely reflect data availability at the current edge. With regard to the geographical focus of Austria's international trade relations, we observe a further shift toward overseas markets in the US dollar area and China, away from Western Europe and Russia. The real effective exchange rate for the tourism industry, which we developed during the previous update and enhanced during this update, reflects a more pronounced appreciation in the tourism sector than in the service sector as a whole. However, according to the latest figures on overnight stays this loss in price competitiveness has had no significant dampening effect on tourism demand in recent months. Finally, we address the economic costs of Austria's current inflation differential to the euro area, which has induced a real appreciation. In two simulations, we quantify realized effects and calculate expected future losses driven by higher unit labour costs. In total, we find that the loss in price competitiveness may cause the Austrian economy to shrink by around ¾ to 1 percentage point between 2022 and 2025.

With around 90 percent of the average retirement income received from public pension entitlements, the Austrian pension system is very reliant on the first pillar. Occupational pensions are primarily offered through pension funds and insurance companies. Direct commitments are an alternative vehicle, but their usage stagnates. The option for defined contribution (DC) plans with favourable tax treatment offered either by pension funds or insurance companies boosted the prevalence of occupational pensions in Austria. While occupational pensions have become more popular over time, low interest rates and a high liquidity preference dampened demand for individual life insurance contracts. Over the years 2002 through 2021, the performance of pension funds in real net terms has been positive, with an annualised average return of 1.5 percent before tax. The life insurance industry followed a distinctly more conservative investment policy and achieved an average annual net real return before tax of 1.9 percent.

This article reports on the most recent update of Austria's effective exchange rate indices, which serve to aggregate data on bilateral exchange rates and relative prices or costs into indicators of Austria's short- to medium-term international competitive position. As before, the weighting scheme builds on bilateral trade data for Austria's 56 most important trading partners and a three-year averaging period, which we were able to move forward to the period 2013-2015. Upon recalculation of existing observations from January 2013 onward, we find confirmation for the medium-term worsening of Austria's competitive position, but in a less pronounced form than suggested by the previous weighting scheme. On the tail end of the curve, the COVID-19 crisis in general and short-time work subsidies in particular have distorted several indicators in 2020 and 2021. With regard to the geographical focus of Austria's international trade relations, we observe a shift away from the large EU economies towards the USA and China, plus a weaker shift from Northeastern Europe towards Eastern Europe and Turkey. Given the economic relevance of tourism for Austria, we newly created a real effective exchange rate for the tourism industry. In this segment of the economy, we see a more pronounced appreciation than in the service sector as a whole from 2015 onward, which would normally imply a decline in tourism services output. That Austria's tourism industry clearly continued to thrive indicates that the appreciation coincided with an upward shift of prices and supply toward higher quality segments.

The effect of price-cost competitiveness on national exports and imports, and hence on the current account, is especially important for open economies, in particular for small open economies. In Europe the issue of short-term price-cost competitiveness gained specific prominence after the onset of the global crisis in 2008, although large external imbalances had been identified even before 2008. Across the Euro system, various (harmonised) indicators are used to monitor and assess national short-term price-cost competitiveness performance. In Austria, these indicators are compiled by the OeNB in cooperation with WIFO. National competitiveness indicators need to be revised regularly to ensure that they adequately reflect changing country-specific trade patterns, as the reliability of these indicators crucially depends on the weights of individual trading partners. In the current release for Austria, which reflects external trade data for the period from 2010 to 2012, the basic conceptual framework was left unchanged. A comparison of the country weights for six consecutive three-year periods, starting in 1995, that underly the current release highlights the re-orientation of trade flows towards countries that joined the EU in 2004 and 2007 as well as the rising importance of China as a destination for Austrian exports. The current revision of the competitiveness indicators for Austria, as described here, indicates only small variations in Austria's international competitiveness since 2008. Another purpose of this article is to establish which of the various price-cost competitiveness indicators best reflects our country's short-term price competitiveness. This is done by estimating standard export and import regressions and comparing the in-sample and out-of-sample fit of models that differ only with respect to the respective real effective exchange rate index. Performance indicators show that models including real effective exchange rates deflated by unit labour costs or by producer prices create comparatively smaller estimation and forecast errors than those using the HICP/CPI.