The Austrian economy is in an advanced state of a boom. Labour market tightness is reaching a new high, solid income growth
is supporting private consumption, and industrial activity is cooling in line with the global economy.
The world economy is likely to have reached a cyclical peak in 2018. A gradual downturn is expected over the next years. Over
the forecast period 2019-2023, Austria's economy is projected to grow at an annual average of 1.7 percent, slightly down from
the 1.9 percent for the period 2014-2018, but exceeding the euro area average by about ¼ percentage point. Private household
incomes will benefit from the introduction of a "Familienbonus" (family bonus: income tax relief for house-holds with children),
which should support consumer demand mainly in 2019 and 2020. Over the entire forecast horizon, pri-vate consumption is expected
to increase by 1.7 percent on annual average, after +1.1 percent p.a. 2014-2018. Thanks to benign cyclical conditions, the
creation of new jobs will outpace labour supply growth until 2020, taking the unemployment rate down to 7.2 percent. Thereafter,
the labour force may again expand faster than labour demand, with the unemploy-ment rate edging up to 7.5 percent by 2023.
Inflation pressure is set to stay moderate over the medium term, such that the positive gap of domestic inflation vis-à-vis
the euro area should close. The consumer price index is anticipated to rise by an average 2 percent p.a. Under the projected
business cycle scenario and the underlying no policy change assumptions, the general government balance should be positive
over the entire period. Hence, the public debt ratio (general government debt as a percentage of nominal GDP) should fall
from 2018 to 2023 by around 14.5 percentage points to the benchmark value of 60 percent.
In 2017, the economic upturn in the Austrian manufacturing sector led to an improvement in the unit labour cost position compared
with the weighted average of all trading partners. Productivity increased more strongly than in previous years, while labour
costs in Austria rose only moderately. The Austrian unit labour cost position also improved in comparison with Germany and
the other EU trading partners.
The backlog of exhaust emission tests led to a considerable build-up of inventories and production losses in the German automotive
industry. Growth in industrial production also slowed down in Austria. However, this setback is not clearly linked to the
automotive supply industry. The situation on the labour market continued to improve in November. The rise in energy prices
should have peaked in October.
Supported by: Anniversary Fund of the Oesterreichische Nationalbank
Online since: 02.11.2018 0:00
This paper analyses the effects of the introduction of the tax relief for families family bonus (Familienbonus) and supplementary
child benefit (Kindermehrbetrag) on household income in Austria, using the WIFO-Micromod microsimulation model that is based
on the EU-SILC data. The average yearly (person-weighted) equivalised household income increases by 320 €, which corresponds
to a relative increase of 1.4 percent. For the families concerned, the reform leads to an increase in the corresponding income
by 733 € or 3.1 percent and to a reduction in the average yearly income tax burden by 1,556 €. The effects are most pronounced
in the medium range of the household income distribution. The total personal income tax revenue decreases by 1.5 billion €
Leading indicators still point to favourable cyclical conditions in Austria until the end of 2018. GDP growth for the year
as a whole is set to reach 3 percent. Currency crises in some emerging market countries, lack of clarity about the further
course of US trade policy, and uncertainty surrounding the terms of Brexit increasingly strain international trade and with
it business activity in highly export-oriented economies. These factors will dampen GDP growth also in Austria, which is expected
to receed to 2 percent in 2019.
The Austrian economy continued to grow at a strong pace in the late summer of 2018, although the trend toward declining unemployment
slowed. In the euro area, growth remains stable, albeit modest. The US economy has benefitted from expansive fiscal policy,
posting particularly strong growth rates. Recent trade-policy signals have been stoking uncertainty. This, in combination
with a sharp depreciation in emerging market currencies, has had a dampening effect on global trade, with potential knock-on
effects for export-oriented industrialised economies.
In 2016, the cash-flow-to-sales ratio of the Austrian manufacturing sector reached an estimated 10.0 percent, a value higher
than the previous year's ratio of 9.4 percent. The ratio should have further increased to 11.0 percent in 2017. The rising
profit-ability ratio of manufacturing corresponds with sound economic growth performance of the sector. Its real value-added
growth rate amounted to 1.3 percent in 2016 and 6.7 percent in 2017, respectively. According to additional estimates of a
dynamic panel-econometric model at the industry level, the cash-flow-to-sales ratio in manufacturing will continue its up-ward
trend in 2018.
After a rather sluggish growth at the beginning of the year, economic activity in the USA gained considerably momentum in
the second quarter. In the EU, following a weak start, economic growth stabilised in the second quarter, although it slowed
again in the euro area. The economy in Austria continues to expand strongly. Despite growth slowing down in comparison to
previous quarters, GDP continues to expand faster than in the average of euro area countries. Unemployment dropped again in
The decline in premium intakes in life insurance and non-life and accident insurance reduced revenues in the Austrian private
insurance industry. A more positive development in health insurance was not able to compensate the overall decline: the total
premium volume in 2017 was down by 2.7 percent. Although the labour market provided a positive impulse to disposable household
income, lower real after tax per-capita wages and falling interest income dampened the demand for private insurance products.
Additionally, continued low levels of interest rates kept the preference for liquidity at elevated levels. At the same time,
the low interest rate environment and a higher regulatory burden reduced the supply of guaranteed interest products in life
insurance. Consequently, the insurance penetration declined further to 4.6 percent of gross domestic product. The results
from the WIFO autumn survey among Austrian insurers for 2018 and 2019 indicate improved expectations for premium intakes in
non-life and accident insurance and continued positive dynamics in health insurance. The downward trend in life insurance
may abate over the forecast horizon.