Austria’s Role in Europe’s Economic Recovery30e267ed-5c7f-49af-8fa3...1996-20 2001-2005 2006-2010 2011-2015 Germany GIIPS New EU-member states Rest of EU + CH USA Well diversified

Austria’s Role in Europe’s Economic Recovery

OMFIF

17 February 2014, London

Ewald Nowotny

Governor, Oesterreichische Nationalbank

www.oenb.at

www.oenb.at [email protected] - 2 -

Comparably favorable growth prospects for Austria

-15 -10 -5 0 5 10

Estonia

Slovakia

Malta

Luxembourg

Ireland

Germany

Austria

France

Belgium

Euro area

Finland

Spain

Portugal

Netherlands

Italy

Greece

Slovenia

Cyprus

Cumulated GDP Growth 2013 to 2015

Source: European Commission, Autumn 2013 Forecast.

• Euro area growth rate positive from 2014

onward, but heterogeneity among euro area

countries remains

• Growth prospects for Austria comparably

favorable owing to:

• the Austrian economy’s high

competitiveness

• the current account surplus since 2002,

positive net foreign asset position since

2012

• comparatively sound fiscal policy

• lowest unemployment rate in the EU

• balanced macroeconomic

developments

• no bubble in real estate markets

• below-average indebtedness of

households and nonfinancial

corporations

• high degree of social stability


Austria´s industry is grading up and

exports are geographically well diversified

-20 20 60 100 140 180

High-Tech

Medium-High-Tech

Mid-Low-Tech

Low-Tech

Austria Germany Euro area

Source: Eurostat.

Percentage change from Jan. 1996 to Nov. 2013

Industrial production for different technology segments

-20%

0%

20%

40%

60%

80%

100%

1996-20 2001-2005 2006-2010 2011-2015

Germany GIIPSNew EU-member states Rest of EU + CHUSA

Well diversified export structure ensures stability of export market growth

Share in total export market growth

Source : IMF (September 2013 World Economic Outlook.)


Austria: Lowest unemployment rate

in Europe thanks to institutional factors

0

5

10

15

20

25

30

AT DEMT LU NL FI ES BE FR SI IU EA IT SK PT CYGRES

2015 2007

Unemployment rates in 2007 and 2015


in %

• High degree of wage flexibility

• Coordinated wage setting and strong “macro

orientation”

• Large number of collective wage agreements

with strong orientation towards sectoral

productivity:

• high degree of sectoral wage differentiation

• heterogeneous, sector-specific working time

regulations

• layoffs by international standards easy; low

degree of “dualism”

• Important role of active labor market policy

• Stable social partnership system including

strong employment orientation of unions and

employers

• Apprentice schemes: training opportunities for

young people; low youth unemployment rate


Labor market outlook for Austria also

comparatively favorable

• Employment growth positive,

but weakening

• Hours worked remain below

pre-crisis level only until

mid-2014

• Adjustment on the

Austrian labor market via

intensive margin

• Strong growth of labor

supply results in rising

unemployment:

• increasing participation

rates of older employees and

women

• migration

Source: Eurostat; OeNB, December 2013 Forecast.

2012 2013 2014 2015Change on previous year in %

Payroll employment 1.5 0.7 0.6 0.7Hours worked 0.5 0.2 0.2 0.5

In % of labour supplyUnemployment rate (Eurostat-Definition)

4.4 4.9 5.0 5.0

94

96

98

100

102

104

106

108

2008 2009 2010 2011 2012 2013 2014 2015

Payroll employment Hours worked

Index (2008Q1=100)

4.44.1 4.4

4.9 5.0 5.0

0

1

2

3

4

5

6

0.0

0.5

1.0

1.5

2.0

2010 2011 2012 2013 2014 2015

Total employment Total labour force

Unemployment rate (RHS)

change on previous year in % in %


Share of foreign labor in Austria has been increasing

• … due to attractiveness of Austrian labor

market and increasing labor mobility in EU

• Labor market liberalization:

• for the EU-8 (May 2011)

• for Bulgaria and Romania (January 2014)

• Migration from Germany has slowed down

• Crisis has to date not triggered migration

flows from GIIPS countries

Source: Federal Ministry of Labour, Social Affairs and

Consumer Protection.

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

01

/01

/200

6

01

/07

/200

6

01

/01

/200

7

01

/07

/200

7

01

/01

/200

8

01

/07

/200

8

01

/01

/200

9

01

/07

/200

9

01

/01

/201

0

01

/07

/201

0

01

/01

/201

1

01

/07

/201

1

01

/01

/201

2

01

/07

/201

2

01

/01

/201

3

01

/07

/201

3

EU-8 EU-2 GIIPS

Employment by citizenshippersons

Employment by citizenship

Jan-06 Jan-09 Jan-11 Dec-13

in % of total foreign employees

EU-8 10.9 13.3 14.9 24.5

EU-2 3.4 3.9 4.4 4.8

GIIPS 2.2 2.4 2.6 3.2

Germany 14.6 18.1 18.8 16.4

Foreign employees, total 100.0 100.0 100.0 100.0

in % of total employees

EU-8 1.3 1.7 2.0 3.9

EU-2 0.4 0.5 0.6 0.8

GIIPS 0.3 0.3 0.4 0.5

Germany 1.7 2.3 2.6 2.6

Foreign employees, total 11.5 12.8 13.6 16.1

EU-8: HU, CZ, PL, SK, SL, LT, EE, LV; EU-2: RO, BG

Source: Federal Ministry of Labour, Social Affairs and Consumer Protection.


Austria’s gradual consolidation strategy

ensures sustainable public finances • Significant fiscal stimulus in 2008 and 2009 was followed by gradual consolidation from 2010

onward right balance between stabilizing demand and ensuring sound public finances

• Austria can reach its MTO in 2015 with some additional structural measures

• Euro area countries under stress: strong GDP and revenue shortfalls and strong increase in

interest payments very strict fiscal adjustment

-9

-8

-7

-6

-5

-4

-3

-2

-1

0

1

2

2006 2007 2008 2009 2010 2011 2012 2013 2014

Structural balance Cyclical componentOne-off effects Budget balance

Budgetary developments in Austria

% of GDP

Source: OeNB.

-9

-8

-7

-6

-5

-4

-3

-2

-1

0

1

2

2006 2007 2008 2009 2010 2011 2012 2013 2014


Budgetary developments in the other euro area core MS (DE, FR, NL, BE, FI)

% of GDP


-9

-8

-7

-6

-5

-4

-3

-2

-1

0

1

2

2006 2007 2008 2009 2010 2011 2012 2013 2014


Budgetary developments in the euro area periphery (IT, ES, GR, PT, IE)

% of GDP



Challenges of Austrian banks are being addressed

Strengths Challenges

Retail-orientated business model Customer loan and deposit business Financing of real economy Liquidity position intrinsically solid,

low dependence on wholesale funding Profitable throughout the crisis Main markets in Austria and CESEE

CESEE Capital ratios at group level below

peers, yet more favorable leverage Decreasing dependence on intra-

group funding

Foreign currency loans High stock of foreign currency loans

in Austria and CESEE Underperformance of repayment

vehicles

Structural aspects Net interest margins, low profitability

in the domestic business

“Sustainability package”

Minimum standards / Guiding principles

Recovery & Resolution Framework (in progress)

International Environment

European banking sector: deleveraging, balance sheet repair, sovereign-bank linkages Sovereign debt market: reduced pressure, remaining uncertainties Weak macroeconomic environment in the euro area

ECB: liquidity, CRR/CRD IV, banking union


Austrian banks have been committed

to the CESEE region and reacted accordingly

80

85

90

95

100

105

110

115

120

Total UA, HU, KZ All other CESEE Countries

Development of Austrian banks' CESEE exposure,(2009-2013Q21)

Source: OeNB. 1/ Adjusted for exchange rate effects.

2009Q1 = 100

Development of

Austrian banks’ CESEE exposure1

CZ 50.7 CZ 64.8

HR 40.5

HR 39.1

RO 37.9 RO 35.8

HU 37.6 HU 27.3

RU 29.3 RU 35.5

SK 26.9 SK 31.2

SI 15.3 SI 13.1 UA 14.1 UA 10.0

BA 7.7 BA 7.0 RS 7.2 RS 8.2

Other 42.6 Other 46.5

0

50

100

150

200

250

300

350 2009/Q1 2013/Q2

in EUR billion

.

Austrian banks’ CESEE

exposure 2009Q1 and 2013Q2 (FX adjusted)

BA: Bosnia and Herzegovina, CZ: Czech Republic, HR:

Republic of Croatia, HU: Hungary, KZ: Kazakhstan, RO:

Romania, RU: Russia, RS: Republic of Serbia, SI: Slovenia,

SK: Slovakia, UA: Ukraine.

Source: OeNB


Profitability of Austrian banks is below pre-crisis level, but higher

than the EU average because of higher profitability in CESEE

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%2007.5 2008 2008.5 2009 2009.5 2010 2010.5 2011 2011.5 2012 2012.5

-1.0%

-0.8%

-0.6%

-0.4%

-0.2%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

2008 2009 2010 2011 2012

EU (excl. CESEE and GIPS) GIPS CESEE (EU Member States) AT

Return on assetsin selected groups of EU countries

-1,3%

Return on assets of Austrian banks

Source: OeNB, ECB consolidated banking data; 2013Q3 annualised.


Austria’s role –

can something be learned from Austria? (1)

Pre-crisis developments supported Austria during the crisis:

• Booming economy, no bubble

• Balanced macroeconomic developments, moderate indebtedness of

households and the government sector, …

• Strong export orientation

• Low unit labor costs growth / favorable international price competitiveness

• Strong productivity and employment growth

• Sustainable fiscal developments (decreasing debt path, ….)

• Front-runner in tourism


Austria’s role –

can something be learned from Austria? (2)

Crisis period and thereafter:

• Strongly hit (especially export-oriented manufacturing), but fast rebound –

rather quick “back to (almost) normality”

• Strong labor hoarding / pronounced flexibility in working hours / short-term

working schemes partly financed by the government thus, only weak effect of

the crisis on the unemployment rate

• Immediate significant fiscal stimulus followed by gradual fiscal consolidation

• Active labor market policies (specific measures aimed at improving

employment chances of workers with high unemployment risk)

• Comprehensive banking sector support package

• AT and CESEE are still partners: Vienna Initiative

• FMA/OeNB sustainability package: Capitalization of banks and funding in

CESEE

• “Social Partnership” facilitated the adjustment; consensus on combination of

supply-side / demand-side policies

Austria’s Role in Europe’s Economic Recovery

OMFIF

17 February 2014, London

Ewald Nowotny

Governor, Oesterreichische Nationalbank

www.oenb.at

Documents

Austria’s Role in Europe’s Economic Recovery30e267ed-5c7f-49af-8fa3...1996-20 2001-2005 2006-2010 2011-2015 Germany GIIPS New EU-member states Rest of EU + CH USA Well diversified