Austria and Automotive Industry
Content
Austria and Automotive Industry
Microeconomics Competitiveness Webster University
March 2013
Table of Contents
Austria Economic Performance .......................................................................................................... 3 Introduction: Country Background ........................................................................................ 3 Economic overview .................................................................................................................. 3 Macro Performance..................................................................................................................... 5 GDP ............................................................................................................................................. 5 Productivity ................................................................................................................................ 6 Inflation ....................................................................................................................................... 7 Fiscal Stability ............................................................................................................................. 7 Employment............................................................................................................................... 8 Micro Performance ...................................................................................................................... 8 Trade ........................................................................................................................................... 8 Foreign Direct Investment (FDI)............................................................................................... 9 Education................................................................................................................................. 10 Clusters ..................................................................................................................................... 10 Global Competitiveness Report ........................................................................................... 11 Works Cited .................................................................................................................................... 12
Table 1 Development of Austria’s GDP over the last years .................................................... 6 Table 2 Austria productivity growth 1995-2013 ......................................................................... 6 Table 3 Employment and Unemployment rates in Austria 2009-2013 ................................... 8
Figure 1 Inflation in Austria 2009-2012 ........................................................................................ 7 Figure 2 Austria balance of trade .............................................................................................. 9 Figure 3 Austria data on FDI ........................................................................................................ 9 Figure 4 Austria Clusters ............................................................................................................. 10 Figure 5 Global Competitiveness Index Austria ..................................................................... 11
Austria Economic Performance
Introduction: Country Background
After the defeat in World War 1, Austria was reduced to a small country which further was followed by annexation and several occupations by victorious Allies during the 1945. However, the State Treaty signed by the Allies in 1955 assured country‟s unity (BBC NEWS, 2011). Country declared permanent neutrality in its constitution which was strengthened even more by entry of Austria into the European Union in 1995. 1999 was market by the country‟s entrance in the EU Economic and Monetary Union with the condition to retain its declared neutrality (Central Intelligence Agency CIA). Located in the Western Europe, Austria has an attractive geographical position being surrounded by eight countries: Czech Republic, Germany, Hungary, Italy, Liechtenstein, Slovakia, Slovenia and Switzerland. Overall the country has a mountainous region which covers almost 75% of the area. Vienna, one of the prime centers of European culture is the capital of Austria representing one of the worldwide known centers for culture, music, museums and attractive history (Thomas White International, Ltd., 2008). Its region has a size of 83,871 sq km with a population of 8.4 million. The major ethnicity is Austrian with the official language German. Its monetary unit is Euro since 2002.
Economic overview
Despite the size of its geographical area, Austria became large in economic development ever since the World War II. Since then, Austria‟s economy has been climbing resulting in the 25th largest economy in the world (Thomas White International, Ltd., 2008), and one of the five richest countries of the world as measured by per capita income (Schneider, 2007). The two most important milestones which marked the Austria‟s placement amongst the most developed European countries were the gaining of the EU membership in 1995 and the Euro adoption in 2002. These catalysts marked the positive changes in Austria leading to solid economic growth, structural changes and a consolidation of public finances and price stability. Nowadays, Austria‟s economy is a „social market economy‟ presented through a well-established market economy, a skilled labor force and a high standard of living. Its economy is characterized by a large service sector, industrial sector, and a small agricultural sector (Central Intelligence Agency CIA). Additionally, high contributors of this economic development are the internationally oriented working nature, the growing importance of the service and technology intensive sectors and the
large share of Small Micro Enterprises (Braun). Specifically, key industrial players in the Austrian economy are: Mechanical and Steel Engineering Chemical and Automotive industry Electrics and Electronics industry Wood, Pulp and Paper industry Food and Drink Industry (Embassy of Israel - Economic Department, 2011)
In 2008, Austria was ranked 25th on the ease of doing business by the World Bank. Additionally, the country is ranked 14th worldwide on the Global Competitiveness Index 2008-2009 and 12th on the Corruption Perceptions Index 2008 (Thomas White International, Ltd., 2008). Its geographical position has contributed positively in their success in the upper mentioned sectors which increased the economic development. The country‟s social economic policies throughout the history were mostly focused in macroeconomic stability, structural reforms and focus on Central, Eastern and South Eastern Europe in the banking and insurance sector which represent the Austria strong economic performance in the past. Traditionally, almost 72% of Austria‟s trade has been focused with the other EU-27 countries and Germany specifically which is its largest trading partner (Euro Challenge, 2012). The export revenues count for more than 50% of country‟s GDP and the foreign direct investment counts for more than 40 billion Euros. The international financial crisis of 2008 and global economic downturn led to a brief recession in Austria that negatively affected the foreign demand for Austrian exports and the employment growth. The rising GDP of 3.5% in 2006 and 2007 slowed to 2% in 2008 and 3.6% in 2009. However, positive growth of 2% was marked in 2010 and 2.7% in 2011. Currently, the country is experiencing a significant slowdown of about more than 1% (Embassy of Israel - Economic Department, 2011). However, stability measures together with stimulus spending and an income tax reform that the country took prevented the rise of unemployment as in other European countries, and pushed the budget deficit from 4.5% in 2010 to 2.6% in 2011 (Central Intelligence Agency CIA). “In August 2011 Austria was the country with the lowest rate of unemployment within the Eurozone. Unemployment is expected to rise to 7% in 2012.” (Embassy of Israel Economic Department, 2011)
Currently the main challenges of Austria are to remain competitive and ensure fiscal recovery and stability by controlling the country‟s budget. This way, the country will prevent any future instability and will reduce the effects of the crisis that has covered Europe. The country is promoting the introduction of a financial transaction tax at the Eurozone level from which the Government is hoping it will raise up to 1billion Euros (Australian Government-Department of Foreign Affairs and Trade, 2012). Current long term priorities of Austrian Government include but are not limited to pension introduction, education, health reforms and civil sector, R&D expenditure increase to 3% of GDP, taxation reform etc.
Macro Performance
The Austrian economy is of a kind that impresses the others by achieving a very good economic performance and maintaining a high degree of social cohesion at the same time. The main pillars of this success are the export-oriented economy, highly skilled labor force and its social partners. Similar like many other European countries, Austria was also hit by the 2008 crisis as explained above. However, their preventive strategies made them close this caption better than other countries. The second part of 2009 marked the recovery phase for Austria where the major factor was the external demand. The pre-crisis peak was surpassed in 2011 however.
GDP
If we look closely to the country‟s GDP development over the years we can see an increase from 2004 with an exception in 2008-2009 when the global crisis hit. The highest percentage of this GPD comes from the country‟s industrial sector which in 2010 had made 22.3% of the country‟s GDP and it is the driving force of the country‟s economy. Next is the construction sector which in 2010 totaled 6.9% of the country‟s GDP which is followed by the agriculture & forestry and services sectors (Embassy of Israel - Economic Department, 2011). The table below summarizes the data on the development of Austrian GDP over the years and also the main contributors of this GDP.
2004 GDP in Euro Real change in % 2.6
2005
2006
2007
2008
2009
2010
2011 forecast 292,9
234.71
245.24
259.03
274.02
282.75
274.82
286.20
2.4
3.7
3.7
1.4
-3.8
2.3
1.9
Table 1 Development of Austria’s GDP over the last years
The industrial sector employs around 900,000 people whereas the construction sector counts for 250,000 employees. Agriculture and forestry is another important pillar of the country‟s economy and it reflects the cultural tradition of the nation. Every year about 6.7 billion euros are earned from these two sectors (Embassy of Israel - Economic Department, 2011). The services sector counts for 2/3 of the country‟s GDP and represents one of the fastest growing sectors.
Productivity
Generally speaking, Austria‟s productivity is of a high scale. Considering the facts of the past and the current situation, we can conclude on a high production level which can be proven by the successful economy that Austria has. The high-levels of productivity can be explained through the well trained workforce and favorable geographical-economical position which make it easier for Austria to maintain a competitive edge in the worldwide market. This is a positive catalyst for the future of Austria economy, as a growing economy due to productivity increases and costefficiencies increase the available resources which contribute to an expanded output. Recently the productivity level experienced a growth in 2010 but it was followed by a slowdown in 2011 as a result of gradually growing employment (EUROPEAN COMMISSION, 2010). The table below summarizes the data on productivity development over the years (Ragacs & Vondra, 2011). 1995-2000 Market Economy 2.9% 2000-2005 1.1% 2010 1.2 % 2011 1.5% 2012 1.1% 2013 1.2%
Table 2 Austria productivity growth 1995-2013
Inflation
Austrian macroeconomic stability can be judged also by its steady inflation rates. In the period 2000-2007 inflation rate averaged for 2% reaching 2.2% in 2007. The peak was in 2008 where inflation raised to 3.8% as a consequence of the global crisis of that time (Thomas White International, Ltd., 2008). As seen, the country has a decade of stable price developments as since the introduction of Euro as its currency in 2002 the country recorded an average inflation rate of 2.0%. In 2011 inflation rose to 3.2% as a consequence of the increase in energy and food prices and fell to 2.1% in 2012 (Ragacs & Vondra, 2011). It is predicted that the inflation rate will fall to 1.9% during 2013. The picture below represents the inflation changes from 2009 to 2012.
Figure 1 Inflation in Austria 2009-2012
Fiscal Stability
Austria fiscal policies are largely determined by the country‟s European Monetary Union. Their policies are meant to function in accordance with the Stability and Growth Pact which requires a budget deficit below 3% of GDP and government debt of less than 60% of GDP (Rubini Global Economics). This helps the country maintain a sustainable budgetary and financial position. The country debt fell from 66% in 2001 to 59.4% in 2007 as a result of fiscal consolidation. The 2008 crisis that hit the entire Europe resulted in a severe slowdown of Austria‟s economy which caused an increase in government debt and the budget deficit. However, as mentioned above, the
budget deficit was much lower as compared to other European countries. On February 2012, the country introduced a draft bill for the consolidation package that shall raise the budget up to 26.5 million euros in the period 2012-2016. The most essential changes are to be done in the taxation of real estate and it is estimated that this policy will raise the revenues of more than 3billion euros (PWC, 2012).
Employment
The country‟s labor market recently has been characterized by an increasing rate of employment and a falling rate of unemployment. Austria‟s successful approach toward a strong economy increased the productivity which therefore created space and need for more labor force. The country‟s unemployment rate is considered the lowest amongst the other European countries as of 2011. Additionally, Austria is ranked as one of the top-ranking countries worldwide as regards of social stability (OESTERREICHISCHE NATIONALBANK, 2012). The table below summarizes the data for the changes on employment and unemployment rate. 2009 Employment Unemployment -0.9% 5.0% 2010 -0.2% 5.4% 2011 0.3% 5.7% 2012 0.5% 5.7% 2013 0.7% 5.7%
Table 3 Employment and Unemployment rates in Austria 2009-2013 (EUROPEAN COMMISSION, 2010)
Overall, the country marked an impressive performance on the employment when compared to other European countries. Many investors consider Austria as very stable and secure with a strong legal system and low crime rate (Thomas White International, Ltd., 2008).
Micro Performance
Trade
The economic crisis of 2008 mostly affected the export and trade industry of Austria. As a result of the economic crisis, in 2009 exports declined sharply following with a recovery of 16% in 2010 (Ragacs & Vondra, 2011). 2011 was also marked with an increase of 5.4% in the export industry. Historically, Austrian balance of trade averaged -283.14 euro from 1953-2012 reaching the highest value of 374million euros in 2006 and a trade deficit of 534 euros in 2012 (Trading Economics). The major exported commodities are automobile and its components, paper, and
machinery products whereas the major imported commodities are machinery and equipment, motor vehicles, chemicals, metal goods, oil etc. The figure below summarizes the data for Austria balance of trade (Trading Economics).
Figure 2 Austria balance of trade
Foreign Direct Investment (FDI)
Austria is not among the top global investors, but it represents an important regional player in Central and Southeast Europe with its investment activities intensified in the last years. Its geographical proximity and historical and cultural ties have enabled different size enterprises to gain advantage and prosper in this regard. The majority of Austrian investments pertain to SMEs who performed investments to a large extent and took the opportunities of internationalization. However the when compared with other European countries the number of Austrian investors is not that large. According to some data published, Austria ranks 7th in terms of the parent companies and 8th in terms of outward FDI stock (Hunya, 2008). During 2004-2005 years the presence of Austrian investors was still low when compared to the other with only 3 investment companies globally. Therefore, Austria is not a major player in terms of FDI but surely it is one of the most important regional players. The table below summarizes the data on country‟s FDI for the last two years and the forecasted data for the upcoming two years (UniCredit, 2013). 2011 FDI (inflow of GDP) 4.9% 2012 1.4%
Figure 3 Austria data on FDI
2013F 2.7%
2014F 2.6%
Education
Education represents one of the most important factors to a society for accessing human capital. The Austrian education system is made of the four-year primary education followed by the 8 year secondary education and post-secondary and tertiary education. Generally speaking, the Austrian education system performs well in terms of quantity as the country enjoys large attainment rates in relation to the money spent on primary and secondary education (EUROPEAN COMMISSION, 2010). Country‟s expenditures on education in the period of 2005-2010 achieved 5.4% of GDP (Central Intelligence Agency CIA).
Clusters
In Austria, the cluster policy is marked by two Austrian characteristics: a strong interaction between firms and the state and the lack of big multinational corporations. Clusters in Austria are considered as powerful instruments to strengthen the competition between small and medium sized enterprises (Hajek, Janger, & Macek). Clusters in Austria operate at three different levels: regional levels (Automotive Cluster Sytria), nation-wide clusters (export campaign clusters) and the Automotive Cluster (Upper Austria). The first institutionalized cluster was the Automotive Cluster Sytria in 1996 followed by a Austrian Water Cluster in 1998 where 37 companies participated until 2000 (Hajek, Janger, & Macek). The largest regional cluster in Austria is the Automotive Cluster in Upper Austria comprised of around 282 organizations that employ 55,000 people. The figure below represents the clusters that operate in Austria.
Figure 4 Austria Clusters
Global Competitiveness Report
According to the Global Competitive Report, Austria is ranked 16th amongst the top 20 most competitive industries in the world. Compared to the last years, this year Austria is up three places with improvements made in several areas. The most noticeable improved areas are: infrastructure in which Austria is ranked 15th, innovation capacity, business sophistication pillar, education and training in which Austria is ranked 3rd (Schwab, 2012). According to this report, Austria receives high grades in the hardship of doing business specifically in labor regulations 16.3, inefficient government bureaucracy 16.2, inadequately educated workforce 13.9, tax rates 12.3, tax regulations 9.5, policy instability 8.8 etc. An improvement in these areas is necessary for Austria to be ranked in higher places in the upcoming years. The table below represents the data of Global Competitiveness Index (Schwab, 2012).
Figure 5 Global Competitiveness Index Austria
Works Cited
Australian Government-Department of Foreign Affairs and Trade. (2012, May). Austria Country Brief. Retrieved February 2013, from http://www.dfat.gov.au/geo/austria/austria_country_brief.html BBC NEWS. (2011, December). Austria country profile. United Kingdom. Retrieved February 2013, from http://news.bbc.co.uk/2/hi/europe/country_profiles/1032215.stm Braun, M. (n.d.). Country Profile: Austria. Retrieved February 2013, from http://ec.europa.eu/invest-inresearch/pdf/download_en/psi_countryprofile_austria.pdf Central Intelligence Agency CIA. (n.d.). The World Factbook-Austria. Retrieved February 2013, from https://www.cia.gov/library/publications/the-world-factbook/geos/au.html Embassy of Israel - Economic Department. (2011, November). AUSTRIAN ECONOMIC REPORT 2011/2012. Retrieved February 2013, from http://www.moital.gov.il/NR/rdonlyres/C1407A17-3E96-4AA2-9B8719D58EA136E7/0/AUSTRIANECONOMICREPORT2008.pdf Euro Challenge. (2012). An overview of Austria‟s economy. Retrieved February 2013, from http://www.euro challenge.org/doc/Austria.pdf EUROPEAN COMMISSION. (2010, March 31). AUSTRIA: MACRO FISCAL ASSESSMENT. Brussels, Belgium. Retrieved February 2013, from http://ec.europa.eu/economy_finance/economic_governance/sgp/pdf/20_scps/200910/02_technical_assessment/at_2010-03-31_ta_en.pdf Hajek, M., Janger, J., & Macek, S. (n.d.). SMEs, clusters and competitiveness – The Austrian experience. Vienna, Austria: Institute for Industrial Research . Retrieved February 2013, from http://www.tcinetwork.org/media/asset_publics/resources/000/000/691/original/Cluster-Bologna-En_Austria_.pdf Hunya, G. (2008, March). Austrian FDI by main Countries and Industries. Vienna, Austria: The Vienna Institute for International Economic Studies. Retrieved February 2013, from http://www.fiw.ac.at/fileadmin/Documents/Publikationen/fiwstudie15.pdf OESTERREICHISCHE NATIONALBANK. (2012, February). Facts on Austria and its Banks. Retrieved February 2013, from http://www.austria.org/images/stories/content/finance/facts_on_austria_e_2012_tcm.pdf PWC. (2012, March). Retrieved February 2013, from http://www.pwc.com/gx/en/asset-management/real-estate-taxservices-newsalert/austria-fiscal-stability-package-2012-planned-tax-law-amendments-in-real-estatetaxation.jhtml Ragacs, C., & Vondra, K. (2011, June). Austria‟s Economy Moves beyond the Crisis. Retrieved February 2013, from http://www.oenb.at/en/img/mop_2011_q2_analyse01_ragacs_tcm16-235934.pdf Rubini Global Economics. (n.d.). Austrian Fiscal Policy. Retrieved February 2013, from http://www.roubini.com/briefings/69963.php Schneider, U. (2007). The Austrian National Knowledge Report. 11. Graz, Austria. Retrieved February 2013, from http://www.emeraldinsight.com/journals.htm?issn=13673270&volume=11&issue=5&articleid=1626644&show=html Schwab, K. (2012). The Global Competitiveness Report. Geneva, Switzerland. Retrieved February 2013, from http://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2012-13.pdf
Thomas White International, Ltd. (2008, November). Country Profile. Chicago, Illinois, US. Retrieved February 2013 Trading Economics. (n.d.). AUSTRIA BALANCE OF TRADE. Retrieved February 2013, from http://www.tradingeconomics.com/austria/balance-of-trade UniCredit. (2013, January 29). CEE Economic Data 2011-2014. Retrieved February 2013, from http://www.bankaustria.at/informationspdfs/CEE_EconomicData_1H13.pdf
Microeconomics Competitiveness Webster University
March 2013
Table of Contents
Austria Economic Performance .......................................................................................................... 3 Introduction: Country Background ........................................................................................ 3 Economic overview .................................................................................................................. 3 Macro Performance..................................................................................................................... 5 GDP ............................................................................................................................................. 5 Productivity ................................................................................................................................ 6 Inflation ....................................................................................................................................... 7 Fiscal Stability ............................................................................................................................. 7 Employment............................................................................................................................... 8 Micro Performance ...................................................................................................................... 8 Trade ........................................................................................................................................... 8 Foreign Direct Investment (FDI)............................................................................................... 9 Education................................................................................................................................. 10 Clusters ..................................................................................................................................... 10 Global Competitiveness Report ........................................................................................... 11 Works Cited .................................................................................................................................... 12
Table 1 Development of Austria’s GDP over the last years .................................................... 6 Table 2 Austria productivity growth 1995-2013 ......................................................................... 6 Table 3 Employment and Unemployment rates in Austria 2009-2013 ................................... 8
Figure 1 Inflation in Austria 2009-2012 ........................................................................................ 7 Figure 2 Austria balance of trade .............................................................................................. 9 Figure 3 Austria data on FDI ........................................................................................................ 9 Figure 4 Austria Clusters ............................................................................................................. 10 Figure 5 Global Competitiveness Index Austria ..................................................................... 11
Austria Economic Performance
Introduction: Country Background
After the defeat in World War 1, Austria was reduced to a small country which further was followed by annexation and several occupations by victorious Allies during the 1945. However, the State Treaty signed by the Allies in 1955 assured country‟s unity (BBC NEWS, 2011). Country declared permanent neutrality in its constitution which was strengthened even more by entry of Austria into the European Union in 1995. 1999 was market by the country‟s entrance in the EU Economic and Monetary Union with the condition to retain its declared neutrality (Central Intelligence Agency CIA). Located in the Western Europe, Austria has an attractive geographical position being surrounded by eight countries: Czech Republic, Germany, Hungary, Italy, Liechtenstein, Slovakia, Slovenia and Switzerland. Overall the country has a mountainous region which covers almost 75% of the area. Vienna, one of the prime centers of European culture is the capital of Austria representing one of the worldwide known centers for culture, music, museums and attractive history (Thomas White International, Ltd., 2008). Its region has a size of 83,871 sq km with a population of 8.4 million. The major ethnicity is Austrian with the official language German. Its monetary unit is Euro since 2002.
Economic overview
Despite the size of its geographical area, Austria became large in economic development ever since the World War II. Since then, Austria‟s economy has been climbing resulting in the 25th largest economy in the world (Thomas White International, Ltd., 2008), and one of the five richest countries of the world as measured by per capita income (Schneider, 2007). The two most important milestones which marked the Austria‟s placement amongst the most developed European countries were the gaining of the EU membership in 1995 and the Euro adoption in 2002. These catalysts marked the positive changes in Austria leading to solid economic growth, structural changes and a consolidation of public finances and price stability. Nowadays, Austria‟s economy is a „social market economy‟ presented through a well-established market economy, a skilled labor force and a high standard of living. Its economy is characterized by a large service sector, industrial sector, and a small agricultural sector (Central Intelligence Agency CIA). Additionally, high contributors of this economic development are the internationally oriented working nature, the growing importance of the service and technology intensive sectors and the
large share of Small Micro Enterprises (Braun). Specifically, key industrial players in the Austrian economy are: Mechanical and Steel Engineering Chemical and Automotive industry Electrics and Electronics industry Wood, Pulp and Paper industry Food and Drink Industry (Embassy of Israel - Economic Department, 2011)
In 2008, Austria was ranked 25th on the ease of doing business by the World Bank. Additionally, the country is ranked 14th worldwide on the Global Competitiveness Index 2008-2009 and 12th on the Corruption Perceptions Index 2008 (Thomas White International, Ltd., 2008). Its geographical position has contributed positively in their success in the upper mentioned sectors which increased the economic development. The country‟s social economic policies throughout the history were mostly focused in macroeconomic stability, structural reforms and focus on Central, Eastern and South Eastern Europe in the banking and insurance sector which represent the Austria strong economic performance in the past. Traditionally, almost 72% of Austria‟s trade has been focused with the other EU-27 countries and Germany specifically which is its largest trading partner (Euro Challenge, 2012). The export revenues count for more than 50% of country‟s GDP and the foreign direct investment counts for more than 40 billion Euros. The international financial crisis of 2008 and global economic downturn led to a brief recession in Austria that negatively affected the foreign demand for Austrian exports and the employment growth. The rising GDP of 3.5% in 2006 and 2007 slowed to 2% in 2008 and 3.6% in 2009. However, positive growth of 2% was marked in 2010 and 2.7% in 2011. Currently, the country is experiencing a significant slowdown of about more than 1% (Embassy of Israel - Economic Department, 2011). However, stability measures together with stimulus spending and an income tax reform that the country took prevented the rise of unemployment as in other European countries, and pushed the budget deficit from 4.5% in 2010 to 2.6% in 2011 (Central Intelligence Agency CIA). “In August 2011 Austria was the country with the lowest rate of unemployment within the Eurozone. Unemployment is expected to rise to 7% in 2012.” (Embassy of Israel Economic Department, 2011)
Currently the main challenges of Austria are to remain competitive and ensure fiscal recovery and stability by controlling the country‟s budget. This way, the country will prevent any future instability and will reduce the effects of the crisis that has covered Europe. The country is promoting the introduction of a financial transaction tax at the Eurozone level from which the Government is hoping it will raise up to 1billion Euros (Australian Government-Department of Foreign Affairs and Trade, 2012). Current long term priorities of Austrian Government include but are not limited to pension introduction, education, health reforms and civil sector, R&D expenditure increase to 3% of GDP, taxation reform etc.
Macro Performance
The Austrian economy is of a kind that impresses the others by achieving a very good economic performance and maintaining a high degree of social cohesion at the same time. The main pillars of this success are the export-oriented economy, highly skilled labor force and its social partners. Similar like many other European countries, Austria was also hit by the 2008 crisis as explained above. However, their preventive strategies made them close this caption better than other countries. The second part of 2009 marked the recovery phase for Austria where the major factor was the external demand. The pre-crisis peak was surpassed in 2011 however.
GDP
If we look closely to the country‟s GDP development over the years we can see an increase from 2004 with an exception in 2008-2009 when the global crisis hit. The highest percentage of this GPD comes from the country‟s industrial sector which in 2010 had made 22.3% of the country‟s GDP and it is the driving force of the country‟s economy. Next is the construction sector which in 2010 totaled 6.9% of the country‟s GDP which is followed by the agriculture & forestry and services sectors (Embassy of Israel - Economic Department, 2011). The table below summarizes the data on the development of Austrian GDP over the years and also the main contributors of this GDP.
2004 GDP in Euro Real change in % 2.6
2005
2006
2007
2008
2009
2010
2011 forecast 292,9
234.71
245.24
259.03
274.02
282.75
274.82
286.20
2.4
3.7
3.7
1.4
-3.8
2.3
1.9
Table 1 Development of Austria’s GDP over the last years
The industrial sector employs around 900,000 people whereas the construction sector counts for 250,000 employees. Agriculture and forestry is another important pillar of the country‟s economy and it reflects the cultural tradition of the nation. Every year about 6.7 billion euros are earned from these two sectors (Embassy of Israel - Economic Department, 2011). The services sector counts for 2/3 of the country‟s GDP and represents one of the fastest growing sectors.
Productivity
Generally speaking, Austria‟s productivity is of a high scale. Considering the facts of the past and the current situation, we can conclude on a high production level which can be proven by the successful economy that Austria has. The high-levels of productivity can be explained through the well trained workforce and favorable geographical-economical position which make it easier for Austria to maintain a competitive edge in the worldwide market. This is a positive catalyst for the future of Austria economy, as a growing economy due to productivity increases and costefficiencies increase the available resources which contribute to an expanded output. Recently the productivity level experienced a growth in 2010 but it was followed by a slowdown in 2011 as a result of gradually growing employment (EUROPEAN COMMISSION, 2010). The table below summarizes the data on productivity development over the years (Ragacs & Vondra, 2011). 1995-2000 Market Economy 2.9% 2000-2005 1.1% 2010 1.2 % 2011 1.5% 2012 1.1% 2013 1.2%
Table 2 Austria productivity growth 1995-2013
Inflation
Austrian macroeconomic stability can be judged also by its steady inflation rates. In the period 2000-2007 inflation rate averaged for 2% reaching 2.2% in 2007. The peak was in 2008 where inflation raised to 3.8% as a consequence of the global crisis of that time (Thomas White International, Ltd., 2008). As seen, the country has a decade of stable price developments as since the introduction of Euro as its currency in 2002 the country recorded an average inflation rate of 2.0%. In 2011 inflation rose to 3.2% as a consequence of the increase in energy and food prices and fell to 2.1% in 2012 (Ragacs & Vondra, 2011). It is predicted that the inflation rate will fall to 1.9% during 2013. The picture below represents the inflation changes from 2009 to 2012.
Figure 1 Inflation in Austria 2009-2012
Fiscal Stability
Austria fiscal policies are largely determined by the country‟s European Monetary Union. Their policies are meant to function in accordance with the Stability and Growth Pact which requires a budget deficit below 3% of GDP and government debt of less than 60% of GDP (Rubini Global Economics). This helps the country maintain a sustainable budgetary and financial position. The country debt fell from 66% in 2001 to 59.4% in 2007 as a result of fiscal consolidation. The 2008 crisis that hit the entire Europe resulted in a severe slowdown of Austria‟s economy which caused an increase in government debt and the budget deficit. However, as mentioned above, the
budget deficit was much lower as compared to other European countries. On February 2012, the country introduced a draft bill for the consolidation package that shall raise the budget up to 26.5 million euros in the period 2012-2016. The most essential changes are to be done in the taxation of real estate and it is estimated that this policy will raise the revenues of more than 3billion euros (PWC, 2012).
Employment
The country‟s labor market recently has been characterized by an increasing rate of employment and a falling rate of unemployment. Austria‟s successful approach toward a strong economy increased the productivity which therefore created space and need for more labor force. The country‟s unemployment rate is considered the lowest amongst the other European countries as of 2011. Additionally, Austria is ranked as one of the top-ranking countries worldwide as regards of social stability (OESTERREICHISCHE NATIONALBANK, 2012). The table below summarizes the data for the changes on employment and unemployment rate. 2009 Employment Unemployment -0.9% 5.0% 2010 -0.2% 5.4% 2011 0.3% 5.7% 2012 0.5% 5.7% 2013 0.7% 5.7%
Table 3 Employment and Unemployment rates in Austria 2009-2013 (EUROPEAN COMMISSION, 2010)
Overall, the country marked an impressive performance on the employment when compared to other European countries. Many investors consider Austria as very stable and secure with a strong legal system and low crime rate (Thomas White International, Ltd., 2008).
Micro Performance
Trade
The economic crisis of 2008 mostly affected the export and trade industry of Austria. As a result of the economic crisis, in 2009 exports declined sharply following with a recovery of 16% in 2010 (Ragacs & Vondra, 2011). 2011 was also marked with an increase of 5.4% in the export industry. Historically, Austrian balance of trade averaged -283.14 euro from 1953-2012 reaching the highest value of 374million euros in 2006 and a trade deficit of 534 euros in 2012 (Trading Economics). The major exported commodities are automobile and its components, paper, and
machinery products whereas the major imported commodities are machinery and equipment, motor vehicles, chemicals, metal goods, oil etc. The figure below summarizes the data for Austria balance of trade (Trading Economics).
Figure 2 Austria balance of trade
Foreign Direct Investment (FDI)
Austria is not among the top global investors, but it represents an important regional player in Central and Southeast Europe with its investment activities intensified in the last years. Its geographical proximity and historical and cultural ties have enabled different size enterprises to gain advantage and prosper in this regard. The majority of Austrian investments pertain to SMEs who performed investments to a large extent and took the opportunities of internationalization. However the when compared with other European countries the number of Austrian investors is not that large. According to some data published, Austria ranks 7th in terms of the parent companies and 8th in terms of outward FDI stock (Hunya, 2008). During 2004-2005 years the presence of Austrian investors was still low when compared to the other with only 3 investment companies globally. Therefore, Austria is not a major player in terms of FDI but surely it is one of the most important regional players. The table below summarizes the data on country‟s FDI for the last two years and the forecasted data for the upcoming two years (UniCredit, 2013). 2011 FDI (inflow of GDP) 4.9% 2012 1.4%
Figure 3 Austria data on FDI
2013F 2.7%
2014F 2.6%
Education
Education represents one of the most important factors to a society for accessing human capital. The Austrian education system is made of the four-year primary education followed by the 8 year secondary education and post-secondary and tertiary education. Generally speaking, the Austrian education system performs well in terms of quantity as the country enjoys large attainment rates in relation to the money spent on primary and secondary education (EUROPEAN COMMISSION, 2010). Country‟s expenditures on education in the period of 2005-2010 achieved 5.4% of GDP (Central Intelligence Agency CIA).
Clusters
In Austria, the cluster policy is marked by two Austrian characteristics: a strong interaction between firms and the state and the lack of big multinational corporations. Clusters in Austria are considered as powerful instruments to strengthen the competition between small and medium sized enterprises (Hajek, Janger, & Macek). Clusters in Austria operate at three different levels: regional levels (Automotive Cluster Sytria), nation-wide clusters (export campaign clusters) and the Automotive Cluster (Upper Austria). The first institutionalized cluster was the Automotive Cluster Sytria in 1996 followed by a Austrian Water Cluster in 1998 where 37 companies participated until 2000 (Hajek, Janger, & Macek). The largest regional cluster in Austria is the Automotive Cluster in Upper Austria comprised of around 282 organizations that employ 55,000 people. The figure below represents the clusters that operate in Austria.
Figure 4 Austria Clusters
Global Competitiveness Report
According to the Global Competitive Report, Austria is ranked 16th amongst the top 20 most competitive industries in the world. Compared to the last years, this year Austria is up three places with improvements made in several areas. The most noticeable improved areas are: infrastructure in which Austria is ranked 15th, innovation capacity, business sophistication pillar, education and training in which Austria is ranked 3rd (Schwab, 2012). According to this report, Austria receives high grades in the hardship of doing business specifically in labor regulations 16.3, inefficient government bureaucracy 16.2, inadequately educated workforce 13.9, tax rates 12.3, tax regulations 9.5, policy instability 8.8 etc. An improvement in these areas is necessary for Austria to be ranked in higher places in the upcoming years. The table below represents the data of Global Competitiveness Index (Schwab, 2012).
Figure 5 Global Competitiveness Index Austria
Works Cited
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