Successfully investing in Austria

published on May 16, 2018

  

​​​How do you assess the current economic situation in Austria?

In early 2018, the assessment of the economic situation was significantly better than it was in the previous years. According to the latest forecast of the Oesterreichische Nationalbank [Austrian National Bank], the GDP growth will be nearly 3.0 per cent in 2018, thus again reaching the benchmark of +2.9 reported in 2017. Surveys and first preliminary indicators suggest a sustainably positive economic trend which will continue into the 4Q 2018. The reasons for this development can be found both in the international and in the domestic environment. The improvement in global trade, the expansionary monetary policy pursued by the European Central Bank for years and the favourable EUR exchange rates have created a positive environment. In December 2017, the governmental programme launched by the new conservative government managed to stop the continuous loss of confidence of Austrian entrepreneurs in Austria as a business location. Due to the deregulation initiative, the planned "decluttering" of the body of laws, and the announced tax reform aiming to reduce corporate and personal income taxes, the overall sentiment is expected to substantially brighten in 2018 and/or 2019. The entrepreneurs' assessment of the current situation and the future business situation is clearly positive. The investment cycle is bolstered by a continuously favourable interest rate environment.

 

Inflation will remain at the current level of just over 2.0 per cent, with the inflation differential relative to the eurozone's average (+0.8 percentage points) being now closely monitored by the National Bank. Due to the improvement in the economic outlook, also the situation on the labour market has relaxed. The number of payroll employees will continue to increase and the unemployment rate will slightly fall to 5.5 per cent in 2018. 
 

How would you describe the investment climate in Austria? Which sectors offer the largest potential?

The investment climate in Austria continues to be favourable. The levels of accepted orders as of the turn of 2017/2018 encouraged many entrepreneurs to consider expanding their production. As the developments as of spring 2018 showed, companies slightly slowed down the pace of expansion of their production. The construction industry assesses the further economic situation as stable; driven by demand, prices have increased by up to 30 per cent in some areas. After a long time, the order backlogs in the industry have reached again a level that allows expecting that the share of expansion investments will increase. Provided that the political risks abroad do not aggravate further and the earnings prospects for Austrian companies remain sound, this constellation allows expecting a more strongly investment-driven upswing in Austria.
 

What challenges do German companies face during their business ventures into Austria?

German companies normally do not face any unusual challenges when doing business in Austria. Of course, there are differences but they are of rather minor importance and in most cases play only a secondary role. Due to the common language and the geographical proximity, many processes are similar – also in tax law. The systematics of tax and commercial law is largely consistent with German law, so no big surprises should be expected.
 
The secure and stable economic conditions in Austria make business engagements for German entrepreneurs manageable and plannable. Negative surprises, however, have been increasingly observed in the areas of trade law and permits for establishing operational plants. The often propagandised one-stop-shop principle applicable to the establishment and opening of a business enterprise is not always implemented in practice. In early 2018, the new conservative federal government launched a debureaucratisation and deregulation initiative. The first results are expected to come in the second half of 2018.
  

What importance does Germany have for the Austrian economy?

Germany is Austria's largest trading partner – 30 per cent of Austrian exports of goods and 41 per cent of exports of services are made to Germany. So, first and foremost thanks to exports to Germany, the 2018 export development made a positive contribution to the Austrian economy. Also in tourism, Germany holds the leading position (53.6 million overnight stays in 2017), thus having a share of about 37 per cent of total overnight stays in Austria (144.5 million).
 
According to studies carried out by the Oesterreichische Nationalbank, the impetus that Germany added to Austria's growth each year between 2006 and 2016 (without changes in inventories) was on average 0.17 percentage points. The largest share hereof (0.11 percentage points) is attributable to German exports. In addition, the increase in Germany's gross fixed capital formation, which has increased the German GDP by 1%, has subsequently led to a 0.20 per cent increase in the Austrian GDP.


In your opinion, how will Austria develop?

The Austrian economic upswing will continue into the first half of 2018. The most important indicators of confidence were record-high in late 2017 and slightly decreased in early 2018. They continue to indicate strong growth; also the growth in employment is still very strong. The current phase of the economic boom is bolstered by both domestic and foreign demand (in particular from Germany). According to the economic indicator of the National Bank, a quarterly growth of 0.8 per cent is expected for the first two quarters of 2018; thus, for the entire 2018, it starts to be evident that economic growth will be at least as strong as in 2017.
 
The brightening of the sentiment is most strongly reflected in the entrepreneurs' willingness to employ. Nearly every third enterprise is planning to hire additional employees. Thus, apart from statistical effects in the context of the migration of refugees, employment in Austria should continue to increase in the coming months, while the unemployment rate should significantly decline.
 
In Austria, the above-mentioned deregulation initiative launched by the federal government is the first step to be followed by further steps on all levels of state administration. Only a reduction in the costs of bureaucracy and federalism can help save significant amounts required for a further tax reform which is urgently needed in particular in the area of non-wage labour costs.

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Wolfgang Quirchmayr

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+43 1 7124 114 17
+43 1 7124 1142 2

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