Annual Average Growth of 1.25 Percent Until 2024

Over the next five years, economic growth in Austria's three main trading partners is expected to slow down to an export-weighted annual average of 1.5 percent (2015-2019 +2.25 percent p.a.). This is the lowest five-year average since the double dip recession in the euro area in 2009 and 2012-13, respectively.

The simultaneous weakening of economic activity in all major parts of the world economy is mainly due to an increase in uncertainty, resulting in lower sales expectations accompanied by hesitant capital formation activities. The trade disputes between the USA and China as well as the EU, resulting in tariff increases (and counter-tariffs) and other trade barriers, are a major cause to the current state of affairs.

The Austrian economy cannot insulate itself from this decline, resulting in significantly weaker growth in exports and fixed capital formation in machinery and equipment (mainly in the manufacturing sector). In the years 2020 to 2022, disposable household incomes will improve as a result of fiscal measures that have already been adopted but will become effective in those years. These include the family bonus and measures adopted by the Austrian National Council in autumn 2019 to support low-income households. The higher income will strengthen private consumption demand (+1.5 percent p.a., 2015-2019 +1.2 percent p.a.).

The projected economic outlook and the "no-policy-change" assumption for economic policy result in a surplus in the general government fiscal balance of an annual average of 0.4 percent of nominal GDP. As a consequence, government debt as a percentage of nominal GDP will drop below 60 percent in 2024.

Whilst it is quite likely that the government programme presented at the beginning of January 2020 will be implemented (at least in part) during the forecast period, a quantitative assessment of the planned measures is not possible within the framework of the present forecast due to a lack of detailed information. Hence, the forecast for public finances presented here can be regarded as conditional fiscal room for manoeuvre: given the presented economic outlook, it indicates the fiscal policy leeway where the objective of a balanced budget (also stated in the government programme) can be achieved without additional (revenue and/or expenditure) counter-financing measures.

Yet the predicted fiscal space will not be sufficient to simultaneously meet the goals of a balanced fiscal position and a reduction of the tax burden. The latter is intended by lowering the first three wage and income tax brackets as well as corporate income tax rate. Since additional spending is foreseen for public transport and climate protection measures, the government programme implies cuts in other public spending areas which have not been presented so far.