Weak Recovery Does Not Solve Our Budget Problems [premium]

Austria's economy is showing signs of a "very moderate recovery," but this upturn is insufficient to address the nation's budget deficit, according to Christian Helmenstein, chief economist at the Federation of Austrian Industries (IV).

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One can speak of an industrial corrugated iron economy.

While the economic outlook has become slightly more optimistic, Helmenstein cautioned that "economic leaps" are not expected this year. The domestic economy returned to growth last year with a 1% increase in GDP after two years of recession. The International Monetary Fund (IMF) forecasts 0.6% growth for this year, but this modest expansion is unlikely to resolve the government's fiscal challenges. The IV's economic barometer for the second quarter remained positive but showed a downward trend, indicating a "corrugated iron economy" with varying performance across sectors.

The construction industry, in particular, has been in recession for years and faces a slow recovery due to higher financing costs. The packaging industry is suffering from weak consumer demand. However, industrial order books have remained stable, suggesting no structural underutilization of capacity. A weaker euro could benefit exporters, but the IV emphasizes the need for an investment-driven recovery rather than relying solely on exports.

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that we have an above-average-sized construction industry.

Helmenstein suggested that Austria could learn from Italy's "hyper and super depreciation" models to stimulate investment. The defense industry is experiencing a boom, but regulatory hurdles, including Paragraph 320 of the Criminal Code, deter companies and banks from engaging in arms projects. The Ministry of Economy has proposed changes to the Foreign Trade Act to facilitate exports in this sector.

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that we have stable order backlogs in industry compared to the previous quarter and that one does not have to fear structural underutilization.

The IV also highlighted the growing national debt, which stands at 83.5% of GDP. To manage this debt, Austria's economic output would need to increase by 2%, a target far from current projections. The IMF predicts 1% growth for Austria in 2027, with stronger, though unspecified, growth expected in 2028 and 2029, before settling around 0.8% by the end of the decade. This slow growth trajectory means the budget deficit will likely persist.

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that Austria should not wait for an export-driven upswing.