People have an increasing need for security. This trend can be attributed to the global financial crisis and the recessionary tendencies manifested in almost all economies around the world. For the first time since World War II, many people have become aware of the fact that cyclical growth temporarily interrupted by periods of weaker economic expansion may not automatically represent the normal state of affairs in our global economy. The value of internal security, the cohesion of society, the predictability and reliability of political decision making processes and down-to-earth crisis management has become increasingly evident, even more than in the last few decades. Above all, in times of crisis, investors with foreign business operations are analyzing the risk profile of the individual countries. For example, how secure and sustainable is the overall business environment in regions where one has already invested? And even more, in which countries is foreign investment the right path to take and important in order to take advantage of future business opportunities? One thing seems certain: the next economic upswing is only a matter of time …
Austria is also being subject to scrutiny. The results are clear-cut and unequivocal: Investors are on the safe side in Austria! What follows is an analysis of the key parameters underlying an “Investor Risk Check” in this country.
Naturally Austria is not fully immune to global economic developments. However, growth forecasts are more favorable than for the rest of the Eurozone. Real GDP growth still amounted to 1.8 percent in Austria in 2008, compared to an average of 1.0 percent in the Eurozone.
It is extremely difficult to make reliable economic forecasts pertaining to the global economy for the current business year. The development of the financial and consumer goods markets has been too volatile to allow this. In the last few weeks, economic experts, economists at banks and the OECD have revised their original forecasts downwards for most industrialized countries. One fact has become evident: 2009 will be a recessionary year.
Austria: GDP decline of 2.2 percent
The latest predictions made by the Austrian Institute of Economic Research foresee a decline of Austria’s GDP by 2.2 percent. Accordingly, Austria’s economy has not been spared the impact of the global recession. This development is hardly surprising, considering the fact that merchandise exports account for about 40 percent of GDP and service exports for an additional 20 percent. Nevertheless, the economic contraction in Austria will be considerably milder than in Germany and, based on the most current data available, also less than the eurozone average.
As a consequence of an impressive increase in real income (2.5-3.0 percent this year) and a tax reform package retroactive to the beginning of 2009, private consumption will be able to assume responsibility for cyclical stabilization.
CEE involvement: Additional opportunity, not a millstone around Austria’s neck
The strong foothold established by Austria’s economy in the CEE markets also serves as a stabilizing factor. Although they have also been negatively impacted by the economic crisis, several of these countries will manage to achieve economic growth in the current business year, even if at a very modest level. One thing is certain: companies in Austria doing business in Central and South East Europe can be sure of their ability to fully take advantage of the upcoming economic upturn in the region.
In the past few months, critical reports were repeatedly published in foreign publications in respect to the extensive CEE business ties of Austrian companies, in particular Austrian banks. However, no distinctions were made among individual countries. In addition, the media usually failed to distinguish between EU member states and nations which do not belong to the EU, for example the Ukraine.
It is important to evaluate the economic strength of countries such as Czech Republic, Slovenia, Slovakia and Poland in a much different manner than the economies of Hungary, Romania or the Baltic States.
The risk of Austrian banks in these countries is widely spread. Moreover, Austrian financial institutions are mostly retail banks with a very high level of primary funding from millions of customers. This means they finance loans from deposits and not on the basis of interbank financing. This fact also makes Austrian banks a bit more independent from the broad-based turbulences on international financial markets.
In conclusion, based on high market shares in individual CEE countries, Austria’s economy has the opportunity to generate additional growth potential once there is an economic pick-up in these developing markets.
Crisis management: a prompt response provides security
The Austrian Federal Government implemented comprehensive measures to overcome the financial market crisis earlier than in other countries. A state guarantee for all primary bank deposits without any limitations on individual investments immediately went a long way towards counteracting any prevailing market uncertainties.
A generous offer made to financial institutions by the public sector to provide non-voting share capital for a limited period of time will significantly improve the equity basis of Austrian banks. In the meantime, the measures immediately carried out by the Austrian National Bank to finance the system of interbank transactions have perceptibly eased uncertainty and the overly cautious approach towards interbank financing. Nobody is talking about a “credit crunch” in Austria, due to the fact that the government’s injection of liquidity into the financial sector in the form of non-voting capital is linked to expanding credit lines provided to the industrial sector.
Broad-based political consensus means stability and security
Austria is currently being governed by a grand coalition supported by a solid parliamentary majority. This provides an additional measure of security in times of crisis, enabling crisis management based on a broad-based social consensus. In addition, it is important to note that the long-standing and historically successful Austrian social partnership has been closely integrated into the government. The Minister of Social Affairs is the former president of the Austrian Federation of Trade Unions, whereas the Minister of Economic Affairs was the secretary general of the Austrian Federal Economic Chamber, which represents the entire Austrian economy on the basis of mandatory membership on the part of all participants in the economic process. As a consequence, the economic stimulus package passed by the government, which encompasses a higher level of infrastructural investments, special funding for research and development and subsidy mechanisms for firms introducing short time work, is being fully supported by the social partnership. This approach provides the business community with an added level of security within the context of a challenging business environment, without the far-reaching conflicts and disputes among interest groups prevailing in other countries.
By Aba - Invest in Austria
Posted May 13th, 2009 by Armen Hareyan
