Press Release No. 24/155

IMF Executive Board Concludes 2024 Article IV Consultation with Austria

May 13, 2024

Washington, DC: On May 3, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation¹ with Austria.

Economic policy support, including the use of available fiscal space, helped the Austrian economy recover rapidly from the pandemic and cushion the adverse impact of the energy-price shock following Russia’s invasion of Ukraine. Nevertheless, higher energy prices and the increase in interest rates required to contain subsequent inflation have weighed on growth, with the economy contracting last year. Inflation peaked in early 2023 and is now declining, but it remains above the euro-area average, with services sector inflation being relatively high and sticky.

Looking forward, a modest recovery is expected in 2024 as higher real wages support consumption. Growth is expected to gather pace during 2025–26 on stronger investment demand, supported by some expected monetary policy easing during 2024–25. In the medium term, growth is projected to be around
1 percent amid downward pressures from population aging. Inflation is expected to decline gradually to the target by the second half of 2025.

However, this baseline outlook is subject to sizeable risks. Key risks include uncertainties around external demand, energy market developments, inflation persistence, and the depth and speed of real estate market corrections. 

Executive Board Assessment[1]

The Executive Directors welcomed Austria’s strong policy responses which have helped mitigate severe economic shocks in recent years. Directors noted that the economy nonetheless contracted in 2023 amidst high energy prices, elevated inflation, and higher interest rates. Economic activity is however expected to stage a modest recovery in 2024 as solid real wage growth boosts consumption. Directors pointed to risks in both directions stemming from uncertainties around external demand and energy market developments, inflation persistence, and price adjustments in real‑estate markets.

Directors concurred that fiscal policy should aim to support disinflation and rebuild buffers. In the near term, they urged the authorities to save any revenue overperformance and avoid new deficit‑creating measures, while remaining flexible as conditions evolve. Directors noted that while Austria retains some fiscal space, fiscal adjustment measures were needed over the medium term to offset rising spending pressures from aging, bolster investment in the green transition, strengthen buffers against adverse shocks, and to put the public‑debt ratio on a clear downward path. Directors urged the authorities to consider options to generate fiscal room, including reducing environmentally harmful subsidies and tax expenditures, updating property taxes, increasing healthcare spending efficiency, and further reforming pensions.

Directors welcomed the financial system’s resilience through recent shocks. They nonetheless urged the authorities to remain vigilant on key risks to financial stability, especially those related to commercial and residential real estate. Directors urged the authorities to close supervisory data gaps in the commercial real estate sector expeditiously and to retain the mandatory borrower‑based limits on mortgage lending as a permanent, structural measure to help mitigate macro‑financial risks. They also emphasized that banks should conserve recent high profits to strengthen buffers against risks, including by bolstering investment in cybersecurity technology. Directors encouraged the swift implementation of key recommendations to improve financial crisis management and continued strengthening of Austria’s AML/CFT framework.

Directors underscored the need for further progress on structural reforms. Noting the drag on medium‑term growth from demographic headwinds, Directors commended the authorities’ efforts to boost labor‑force participation by expanding childcare resources and raising women’s standard pension age. They urged additional efforts to boost labor supply, including by further expanding childcare, closing gender wage gaps, enhancing migrant integration, and exploring the scope for further pension reforms.

Directors welcomed progress on the green transition and urged the authorities to take additional measures, including by removing regulatory bottlenecks, ensuring adequate resources for green investment, and addressing skill shortages. They emphasized that progress in this area would also enhance energy security, which is important in the context of widening geoeconomic fragmentation pressures.

It is expected that the next Article IV consultation with Austria will be held on the standard 12‑month cycle.

[1] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.