Austrian GDP Grows in 2015, but Continues to Struggle

Austria’s GDP rose 0.1 percent in the first quarter, and exports increased 0.8 percent when compared to the last quarter. Austria is one of Europe’s most downtrodden economies.  Austria, once known as “the better Germany,” has seen its role reversed. Germany is now the most prosperous nation in Europe. What happened?

Austria’s GDP rose 0.1 percent in the first quarter, and exports increased 0.8 percent when compared to the last quarter. Austria is one of Europe’s most downtrodden economies.  Austria, once known as “the better Germany,” has seen its role reversed. Germany is now the most prosperous nation in Europe. What happened?

One example is Austria’s failing to compete in the automobile market. Surrounding nations such as Slovenia and the Czech Republic surpassed Austria in terms of manufacturing auto parts, and Germany is turning to those nations instead. Poland is another nation that is taking Austria’s share of German imports, and it seems that the country is failing to adapt. Austria is also missing investment opportunities because neighboring countries are able to lure more companies to base operations within their borders. Gross foreign investment dropped 1.2 percent during the first quarter.

In addition, business rules have changed, and this has worked against Austria. Due to changes in EU regulations, Austria can no longer entice companies to invest in the nation through subsidies, something that made the nation prosperous during the 1970s. Central bank governor Ewald Nowotny stated that his country faces “long-term structural change,” and policymakers must find new ways to inject life back into the economy, notes Bloomberg News.

This does not mean that Austria is a lost cause, and there is progress. For instance, officials cut taxes on lower salaries to boost consumption, but it is unclear if the cuts will work. Currently, consumption remains steady, which is part of the reason why the economy is gaining traction. The central bank’s goal is to boost the economy by 1.9 percent in 2016 and 1.8 percent in 2017. However, cutting taxes is not something Austria can currently afford. The country has a relatively low retirement age, thin state coffers, and a banking policy that is missing a pro-growth orientation.  The central bank is somewhat at a loss over the state of the economy so it has formed a data committee to find the root causes of the economic decay.

One problem is the nation’s unemployment rate, which rose to 5.7 percent in April.  One should note, however, that Austria has one of the lowest youth unemployment rates in Europe because of its robust apprenticeship programs. There is a trade-off, however, since over 16 percent of the older population is unemployed. Austria is the midst of an idea crisis, and only a top-down approach of creativity and bold solutions will once again propel the nation forward.