Debt is Rising: Austria's Crisis Resilience is Weak

The high national debt and low economic growth are currently troubling Austria. This affects the state's resilience to future crises, as the rating agency Scope assesses Austria's economic situation. The budget consolidation planned by the government is unlikely to lead to a stabilization of the national debt in relation to GDP over the next five years without further measures.

Austria poorly equipped against crises

Crises such as the pandemic, Russia's war against Ukraine, and the weakening economy of some Austrian trading partners have negatively impacted the domestic economy and state finances. Scope expects economic stagnation for this year. In the second quarter, economic output was only 1.7 percent above the pre-Covid level. This places Austria significantly below the Eurozone average of plus 6.5 percent, notes the rating agency.

Especially the export-oriented sectors - including the automotive and steel industries - are clearly feeling the strained trade relations between the USA, Europe, and China. Volatile energy prices and higher tariffs are to be expected here, warns the European rating agency. "We assume that economic growth will average about 1 percent per year over the next five years, significantly below the 2 percent in the five years before the pandemic."

Demographics as a burden

Last year, the budget deficit was 4.7 percent of GDP - making it the third highest since 2006. Only during the financial crisis of 2009 and during the pandemic of 2020/21 was the deficit higher.

The cost of living and the increase in expenses due to the aging population are likely to lead to high primary deficits, according to the rating agency. The state must therefore take out new loans to fulfill core tasks and finance existing debts. In the two decades before the pandemic, however, there were moderate overall deficits and regular primary surpluses.

Increase in Debt

According to Scope, the state must manage the higher expenses related to the aging population with a tightening of health services and pension reforms. The government estimates that pension expenses will rise from 30 billion euros (6.2 percent of GDP) last year to 38.2 billion euros (6.7% of GDP) by 2029.

In the current situation, further measures are required to stabilize debt development, according to the rating agency. "We estimate that the government will save only about 10.6 billion euros of the projected 14.6 billion euros in the coming years. If this is true, the government will miss its deficit target of 3 percent by 2028," notes Scope. By 2030, debt would then gradually rise to 88 percent of GDP, up from 82 percent last year. In contrast, comparable countries average about 60 percent.

(APA/Red)

This article has been automatically translated, read the original article here.