Policy Note 60: Austria with declining competitiveness

The competitiveness of the Austrian economy is becoming increasingly negative. As the current EcoAustria Competitiveness Index (ECI) for the fourth quarter of 2024 shows, the phase of stagnation that could be observed until around 2022 has solidified into a phase with a downward trend in 2023 and 2024. What is particularly critical here is that Austria is also performing worse in a pan-European comparison - and therefore not only relative to less economically developed and "catching up" countries such as Greece or the Baltic states, but also in comparison to the pan-European average .

In addition, the current index value of 102 shows the loss of competitiveness not only relative to other economic areas, but also in absolute index values. By way of comparison, the index value was still 104.3 in the fourth quarter of 2022 - just two years before the current analysis. The development is therefore not only a reflection of the prevailing global conditions, but also an expression of the country's own weaknesses. With its current index value, Austria is only just above the initial value from 2017 and is clearly in the lower half of a generally stagnating European competitive environment compared to the rest of Europe. With the current index value from the fourth quarter of 2024, Austria ranks 23rd among 30 European comparative economies. These are the member states of the EU27, Norway and the pooled economic areas for the EU27 and the eurozone .

In terms of methodology and concept, the ECI measures the development of competitiveness in a European comparison and is based on three central indicators: Gross fixed capital formation, net exports and real labor productivity. In all three areas, the data from the current ECI shows a negative picture for Austria:

• Gross fixed capital formationhas stagnated over the entire period under review since 2017 . The index value is currently 103 and is only just above the starting level of 2017. The trend at the current margin has been clearly declining since the beginning of 2022. The decline reflects the uncertainty and pessimistic profitability expectations among companies and investors.
  
• The trend in net exports has also been clearly negative recently. Although net exports as a percentage of GDP briefly exceeded the pre-2020 level at the start of 2023/2024, there was a clear trend reversal over the course of the year. While declining foreign trade volumes generally indicate a global economic slowdown, the negative trend in net exports also points to structural challenges in the Austrian export industry. Competitive products and services are losing visibility and market penetration on international markets.
  
• Real labor productivityhas been developing as a problem area since 2023 . After Austria performed comparatively well during the COVID pandemic, productivity is now only just above the level of early 2017 with an index value of 103.4 in the fourth quarter of 2024. Productivity growth has come to a standstill since 2022 and has recently even declined significantly. The main reason for this is the weak development of overall economic output. In the near future, the above-average increase in unit labor costs in an international comparison could act as an obstacle to a positive trend reversal.
  

The analysis shows that the Austrian economy is increasingly losing substance. In order to counteract this development, economic policy measures are required that are specifically aimed at promoting investment, increasing productivity and international competitiveness. In an environment of geopolitical uncertainties and global challenges as well as increasing competitive pressure, Austria cannot afford to be complacent, as otherwise economic prosperity will be lost. The results of the ECI underline the fact that Austria cannot rest on its historical strengths. Structural reforms and clear economic policy stimuli are necessary to halt the downward trend and secure the country's competitiveness in the long term .