WIIW The Vienna Institute for International Economic Studies - Wiener Institut für Internationale Wirtschaftsvergleiche

Favourable  developments  in  the  euro  area;  growth  acceleration  in  NMS  (3%  in  2015); improvements also in the Western Balkans (but less dynamic); gloomy prospects in the CIS countries; overall CESEE growth acceleration acts as a demand stimulus for Austria

The  outlook  for  GDP  growth  in  the  Central,  East  and  Southeast  Europe  (CESEE)  region remains divergent: we expect a gradual acceleration of GDP growth for most of the EU’s new Member  States  (NMS)  starting  this  year.  For  2015  growth  is  expected  to  increase  to  3%  on average,  by  0.2  pp  more  as  compared  to  last  year.  The  recovery  comes  a  year  earlier  than expected mainly based on favourable developments in the euro area. In the Western Balkans growth prospects  will  also  improve over the  whole forecast period  2015-2017,  though slightly less  dynamically.  Growth  performance  in  Belarus,  Kazakhstan,  Russia  and  Ukraine  in  2015, however,  will  be  dismal  and  partly  worse  than  expected;  the  medium-term  outlook  for  these countries is also fairly  uncertain  with considerable  downside risks. Overall though, we should expect  stronger  CESEE  growth  to  act  as  a  demand  stimulus  for  the  Austrian  economy.  The NMS in particular are of increasing importance for Austria.

Austrian competitiveness unchallenged by CESEE; goods exports to NMS-5 expanded; CESEE  also  more  important  in  terms  of  services  exports;  apart  from  tourism  also business-related services exports prosper

Mario Holzner, wiiw Deputy Director

Austria faces only little risks of losing competitiveness to the CESEE countries. Over the longer run  these  countries  have  registered  higher  productivity  increases  but  also  much  higher  wage growth. While direct Austrian goods exports to Germany have lost some importance, exports to CESEE and especially the NMS-5 have gained shares in overall goods exports. Also in Austrian services exports, CESEE is an ever more important market, not only in terms of tourism but also due to business-related services exports. Regarding Austria’s total foreign demand, the CESEE growth  stimulus  was  stronger  than  the  German  one  in  the  past.  However, over the forecast period this should equalise on account of the German recovery gaining momentum.

Integration  process  in  Central  Europe  is  advancing;  Austria  can  profit  from  higher growth  of  neighbours;  major  EU  economic  policy  challenge  is  saving  in  the  corporate sector

Overall it can be noted that the integration process in Central Europe is still proceeding and that Austria has benefited from the higher growth rates of its eastern neighbours and will do so also in the future. A major economic policy challenge for the entire EU over the coming years is to substantially increase economic growth and fight mass unemployment. Especially the corporate sector has to be motivated to stop saving and to restart investment. Measures of recapitalisation and economic stimulus packages should lead to more consumer demand and subsequently to more investment of the private sector.