When Russia’s war on Ukraine began, it looked like Austria would be on the front line of the economic fallout in Europe. Not only did the Alpine country depend almost entirely on Russia for its natural gas supplies but, for years, its leading businesses had also looked east for their markets.
But Austria’s economy has so far proved more resilient than many expected. While the effects of the energy crisis have yet to be seriously felt — thanks to a warmer than expected autumn and an EU effort to build reserves — there are signs that, with continued political support, businesses will weather the storm.
In a mid-year assessment, Austria’s central bank (OeNB) forecast 4.1 per cent growth in gross domestic product in 2022, with 2 per cent growth in 2023 and 1.9 per cent in 2024.
There are caveats: OeNB economists are banking on an optimistic assessment of the course of the war in Ukraine. The bank says it expects the most intense phase of hostilities to be over early next year. A more pessimistic military scenario could see Austria’s economy shrink, OeNB noted in a recent forecast.
Harald Mahrer, president of the Austrian chamber of commerce, believes energy prices will be key. “For Austria as a business location, security of supply and affordability of energy are of the utmost priority and need to be addressed by the government,” he says. Although Austria is already one of Europe’s leading generators of renewable energy, Mahrer says gas will continue to play a major role in meeting the country’s needs in the medium term.
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While this poses a challenge, it also presents investment opportunities, says Mahrer. “Even though energy prices have fallen recently, they remain at a high level. It can also be assumed [they] will rise again in the coming months. That is why we have a major common EU challenge: namely to lower gas and thus electricity prices . . . new [liquefied natural gas] ports and new pipelines must be built and the entire infrastructure for Europe’s energy supply must be better connected.”
Austria is well positioned to become a “hub” for such projects, according to Mahrer. The country has already become a leading centre for innovation and development in green energy — a position that it could capitalise on.
Crucial to how Austria navigates these changes will be government assistance. So far, Vienna has been generous in its financial support. That has surprised some, given the ruling conservative Austrian People’s party’s (ÖVP) prior commitment to fiscal conservatism — although it governs as a dominant partner in coalition with the Greens.
Some political observers say this may be a legacy of the pandemic, when the ÖVP was forced to spend billions of euros of public money to bail out the economy. The political scandals that have rocked the ÖVP for the past year — relating to an ongoing investigation into government corruption — may also have had some bearing on its appetite for generosity.
A number of support packages have been targeted at business. In September, economy minister Martin Kocher announced the government would provide €1.3bn to subsidise the energy bills of the companies most exposed to fluctuating prices, with each business entitled to have just under a third of the cost of price increases covered.
The Green party has, meanwhile, pushed through support packages to hasten the carbon transition. Leonore Gewessler, Austria’s energy, environment and transport minister, unveiled a €5.7bn package in October that will help to decarbonise industry by subsidising green power costs. Every year until 2040 — when Austria has promised carbon neutrality — €400mn will be available to write contracts for difference with industrial businesses, to cover the premium they pay on their energy bills for an entirely carbon-neural supply.
An additional €190mn will be spent annually as part of the same package to help businesses reduce their overall energy footprint.
Austria has about 80 per cent of its winter gas needs in reserves, meaning many do not foresee shortages this year.
“Austria will be among the fastest growing economies in Europe this year,” says Gunter Deuber, head of research at Raiffeisen Bank International. “That means that, although we’re facing an industrial downturn across Europe, Austria will go into it on a very strong footing.”
Nevertheless, Deuber says a “dramatic deceleration” in growth is likely. “We will manage this winter but the interesting question is how things play out next year,” he adds. “The picture is mixed. Companies have good order books, backlogs and supply chain issues are getting lighter, and private consumption is still OK. But we shouldn’t underestimate the effect of the highest inflation we have seen in decades.”
Different sectors are likely to be affected in a variety of ways. In an interview Reinhard Wolf, head of Austria’s biggest agricultural operator, the co-operative Raiffeisen Ware, says that, while the energy crisis is a concern, farming in the country is so far proving resilient thanks to high prices that are increasing margins. “I am optimistic for 2024 and 2025,” Wolf says. “But it is 2023 we have to be careful to manage.”
For Austria’s tourist sector — one of the single largest contributors to GDP — the end of Covid restrictions has come as a great relief. But climate change is an increasing challenge in a country that is best known as a destination for snow sports. In addition, consumer sentiment — at its lowest level in years in neighbouring countries such as Germany — is likely to hit visitor numbers. Deuber says this winter’s tourism revenues will have a crucial impact on GDP.
Austria’s tech and start-up scene, however, continues to boom: companies such as Refurbed — an online marketplace for second-hand goods that aims to be the “Amazon of sustainability” — are carving out leading positions in their niches in Europe. Austria’s scientific and technical higher education system is supporting innovative start-ups in area such as climate innovation. In this, says Mahrer, “Austria must be regarded as a European pioneer.”