Austria

Only a tiny recovery expected in 2024

In 2024, growth in the Austrian economy is likely to resume after a contraction of 0.8% in 2023. However, it is likely to be very small and mainly occur in the second half of the year. Services are expected to expand further, but at a slower pace than in 2023. Barring tourism, sentiment for this sector is not high. This is partly owing to weak development in manufacturing which has begun to negatively influence some services like transport and trade. Tourism demand will remain high, even though prices in the hospitality industry are rising fast and are causing tourists to substitute lower quality offers for expensive packages, which is weighing on growth. The manufacturing sector, which has been in recession since mid-2022, is unlikely to recover before mid-2024. Manufacturing sentiment is at its lowest point since the start of the pandemic in 2020. Manufacturer surveys show that the most important obstacle to production is the lack of demand. The rebound in eurozone manufacturing is taking its time, especially in Germany – Austria´s main trading partner – where it is on hold. Nevertheless, with the resumption of purchasing power and reduced financing costs in the eurozone, the demand for investment goods from Austria is expected to increase from mid-2024. Combined with growth in services, albeit at a slower pace, this should lead to slightly positive GDP growth in 2024.

Private consumption, thanks to the easing of inflation and recent collective wage agreements, will be the main driver of recovery in 2024. In most sectors, collective agreements have been automatically indexed based on the 2023 inflation rate. Given the expected average nominal wage increase of 6.6% and the inflation rate of 3.7% for 2024, real wages should increase by 2.9%, one of their highest growth rates in the last two decades. The outlook on investment is not as positive but there is light at the end of the tunnel. Interest rate hikes tend to pass through the Austrian economy more strongly due to the prevalence of variable-interest loans to both households and firms The ECB should cautiously lower interest rates from June 2024. A total of up to three rate cuts could be in the pipeline for the year 2024. However, the number and scope of the cuts will clearly depend on the development of (core) inflation and nominal wages. At the same time, while the ECB will fully reinvest the principal payments from maturing securities purchased under the Pandemic Emergency Purchasing Programme (PEPP) during the first half of 2024, it intends to reduce reinvestments by €7.5 billion per month in the second half and cease completely thereafter. European monetary policy will therefore remain restrictive even with a few interest rate cuts. While investment into equipment is expected to recover slowly, as firms gain confidence in the recovery of Austria´s main trading partners and benefit from reduced financing costs, investment in construction will reach a trough at some point in 2024. The construction sector is suffering from costlier building materials and financing. While the latter are expected to ease in 2024, sentiment and expectations in the sector are at their lowest levels since the beginning of the pandemic in 2020. In 2023, construction firms cut jobs, a sign that it will most likely take some time yet for recovery to set in.

Unchanged budget deficit and rising current account surplus

Austria´s budget deficit as a share of GDP is expected to remain unchanged in 2024. There will be a reduction in spending regarding inflation relief measures. The energy cost subsidy for firms ran out at the end of 2023. Conversely, the brake on electricity prices for households was extended until the end of 2024, even though the magnitude of the subsidy was reduced. Other expenses such as interest payments and social benefits will increase, with the latter experiencing growth due to increased consumer prices. Revenues were at a record high in 2023, caused by higher prices in combination with a constant VAT rate, a development that is expected to continue in 2024 with the recovery in private consumption. By contrast, a reduction in the corporate income tax rate and the indexation of income tax brackets to inflation will weigh on revenue growth. Public debt as a share of GDP is expected to increase slightly in 2024.

Austria´s current account stood at its usual surplus in 2023 and is likely to expand further in 2024. The services trade balance will increase, carried by high inbound tourism receipts, and will be the main driver of the current account surplus. Terms-of-trade improvements should also further enhance the goods trade balance in 2024. In general, both services and goods trade will benefit from Austria´s main trading partners’ slow recovery. Both the balance of primary and secondary income should remain negative in 2024.

Round robin in the polls before the general election in the fall of 2024

Karl Nehammer from the centre-right Austrian People's Party (ÖVP) has been the Chancellor of the Alpine Republic and leading a coalition out of ÖVP (holding 71 out of 183 seats in Parliament) and the Greens (26 seats) since December 2021. Nehammer is the successor to Alexander Schallenberg, who acted as interim chancellor for a few months after Sebastian Kurz (both of the ÖVP) resigned. Kurz stepped down and opted out of political life after a corruption scandal in October 2021. In addition, in February 2024, Kurz was convicted of perjury before a Parliamentary investigation committee. The ÖVP has consequently lost a great deal of support from public opinion, right when the next general election in the autumn of 2024 is looming. The ÖVP obtained only 21% of votes in the March 2024 polls against 37.5% in the previous 2019 general elections. Its coalition partner, the Greens, shares a similar fate and also lost some of its support (from 13.9% in 2019 to 8% in March 2024). The big winner of the polls is the national-populist FPÖ led by the controversial Herbert Kickl. The FPÖ has been leading the polls since November 2022 and would win 27% of the votes according to the same polls. The social-democratic SPÖ had some ups and downs in the polls and would, with only a 23% share of the votes, only gain 2 percentage points compared to the last election results.

The main problem after the election in the coming autumn will be the formation of a stable government coalition. Due to their extreme political differences, there can be no coalition of the FPÖ and SPÖ led by left-wing Andreas Babler. The latter also ruled out an often-used coalition with the ÖVP and the liberal Neos (10%). But without a third party, a combination without the FPÖ would fail to secure an absolute majority. At the same time, the ÖVP has ruled out a coalition with the FPÖ if Kickl remains leader. The “Beer party” could be a surprise element. The left-liberal party that was founded in 2015 as a joke by the frontman of a punk rock band is mainly active in Vienna. It will be standing for election to the National Council for the second time in 2024. Since the beginning of 2024, it has gained widespread support and was polling at 7% in March, above the minimum threshold of 4% to enter the Austrian Parliament. Political uncertainty ahead of the election is therefore running high, but Austrian political parties have always found a way to build a coalition in widely differing tie-ups despite their leaders’ initial reluctance. If the new coalition included the FPÖ, the Austrian government could turn away more from EU-projects and reduce investments in environmental projects.

Payment

SWIFT and SEPA (within the EU) transfers are commonly used for domestic and international transactions and offer a cost-effective, quick, and secure means of payment.

Bills of exchange and, to a lesser degree, cheques are most commonly used as a means of financing or payment guarantee. Nevertheless, neither are widely used nor recommended, as they are not always the most effective means of payment., bills of exchange must meet relatively restrictive mandatory criteria to be valid, which deters business people from using them. In parallel, cheques need not be backed by funds at the date of issue, but must be covered at the date of presentation. Banks normally return bad cheques to their issuers, who may also stop payment on their own without fear of criminal proceedings for misuse of this facility.

Debt Collection

As a rule, the collection process begins with the debtor being sent a demand for payment by registered mail, reminding him of his obligation to pay the outstanding sum plus any default interest stipulated in the sales agreement or terms of sale.

Where there is no interest rate clause in the agreement, the rate of interest applicable semi-annually from August 1, 2002 is the Bank of Austria’s base rate, calculated by reference to the European Central Bank’s refinancing rate, marked up by eight percentage points.

FAST-TRACK PROCEEDINGS

For claims that are certain, liquid and uncontested, creditors may seek a fast-track court injunction (Mahnverfahren) from the district court via a pre-printed form. The competent district court for this type of fast-tract procedure expedites the requisite action for ordinary claims up to EUR 75,000 (previously EUR 30,000).

With this procedure, the judge will issue an injunction to pay the amount claimed plus the legal costs incurred. If the debtor does not appeal the injunction (Einspruch) within four weeks of service of the ruling, the order is enforceable relatively quickly.

A special procedure (Wechselmandatsverfahren) exists for unpaid bills of exchange under which the court immediately serves a writ ordering the debtor to settle within two weeks. However, should the debtor contest the claim, the case will be tried through the normal channels of court proceedings.

If the debtor has assets in other EU countries, the creditor may request the Vienna Commercial Court to issue a European Payment Order for undisputed debts, enforceable in all EU countries (except Denmark).

ORDINARY PROCEEDINGS

Where no settlement can be reached, or where a claim is contested, the last remaining alternative is to file an ordinary action (Klage) before the district court (Bezirksgericht) or the regional court (Landesgericht) depending on the claim amount or type of dispute. Defendants have four weeks to file their own arguments.

With regards to the regional courts, defendants are expected to put forward their own arguments in response to the summons, and are allowed four weeks to do so.

A separate commercial court (Handelsgericht) exists in the district of Vienna alone to hear commercial cases (commercial disputes, unfair competition lawsuits, insolvency petitions, etc.).

During the preliminary stage of proceedings, the parties must make written submissions of evidence and file their respective claims. The court then decides on the facts of the case presented to it, but does not investigate cases on its own initiative. At the main hearing, the judge examines the written evidence submitted and hears the parties’ arguments as well as witnesses’ testimonies. An enforcement order can usually be obtained in the first instance within about ten to twelve months. The Civil Procedure Code provides that the winning party at issue of the lawsuit is entitled to receive full compensation from the losing party of all necessary legal fees previously incurred.

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Enforcement of a Legal Decision

A judgement becomes enforceable when it becomes final. If the debtor does not respect the court’s judgement, the court can issue an attachment order or a garnishment order. Alternatively, the court can seize and sell the debtor’s assets.

For foreign awards, circumstances may vary depending on the issuing country. For EU countries, the two main methods of enforcing an EU judgment are the European Enforcement Order or under the provisions of the Brussels I regulations. For non-EU countries, judgments are recognized and enforced provided that the issuing country is party to an international agreement with Austria.

Insolvency Proceedings

OUT-OF COURT PROCEEDINGS

Out-of court restructuring efforts and negotiations are usually antecedent to insolvency proceedings. They constitute a means to obtain recapitalization loans in exchange for a secured creditor status.

RESTRUCTURING

A pre-requisite for a restructuring proceeding is that the debtor files for the opening and at the same time submits a restructuring plan. This proceeding is either self-administrated or administrated by an administration. For self-administrated restructuring, the debtor must file an application of self-administration complemented by qualified documents and a restructuring plan that provides a minimum quota of 30%.

LIQUIDATION

Liquidation proceedings aim to equitably realise the various creditors’ rights. The proceedings are led by a trustee in bankruptcy which takes control of the business, sells the assets, and divides the proceeds among the creditors.

RETENTION OF TITLE

Similar to Germany, Retention of Title is a written clause in a contract, which states that the supplier will retain the ownership over the delivered goods until the buyer made full payment of the price. This usually takes one of three forms:

simple retention: the supplier will retain the ownership over the goods supplied until full payment is made by the buyer;

expanded retention: the retention is expanded to further sale of the subsequent goods; the buyer will assign the claims issued from the resale to a third party to the initial supplier;

extended retention: the retention is extended to the goods processed into a new product, and the initial supplier remains the owner or the co?owner up to the value of its delivery.

Last updated: April 2024