Austria

Minor recovery after two years of recession

After two years in recession, economic output is expected to pick up again in 2025. In fact, there were already signs of a recovery in 2024, in which the economy grew slightly quarter-over-quarter in almost every quarter. However, due to a very large statistical underhang coming from 2023, the annual growth rate for 2024 remained negative. Weak economic development was due to a recession in industry, which originated in Germany. Almost 29% of all Austrian exports (12.5% of the GDP) go to Germany, often in the form of intermediate products for the German manufacturing sector. The latter has been in recession since 2019 and has therefore weighed on the Austrian economy. Although no significant recovery is expected here in 2025, it is at least expected to stabilise at a low level. Russian gas deliveries to Austria (in August 2024, these still accounted for 82% of imports), which were still passing through Ukraine until mid-November 2024, are a factor of uncertainty for production. Due to payment disputes with the supplier Gazprom, they were suspended, but the end was foreseeable with the expiry of Ukraine's gas transit deal at the end of 2024. In December, the Austrian energy company OMV terminated the contract with Gazprom prematurely. It was supposed to have run until 2040. It is likely that a large part of the shortfall will be made up by deliveries from Norway where OMV has its own production facilities. LNG could also find its way to Austria via terminals in Poland, Germany, Lithuania, Italy, Greece and Croatia.

Slightly positive impetus is likely to come from the financial sector in 2025 (4.3% of GDP). This is likely to be driven by lower interest rates and therefore slightly higher demand for credit. By mid-December 2024, the ECB had reduced its key interest rate (the deposit rate) by 25 basis points on four consecutive occasions. Further similar rate cuts are expected for 2025, down to a “neutral” level of around 2%. This interest rate should neither slow down nor drive up the European economy. At the same time, however, the ECB will also continue reducing its balance sheet and the maturing assets of all QE programmes will no longer be reinvested in 2025. Another positive trend should come from (ski) tourism. Half of foreign tourists come from Germany, followed by the Netherlands and the UK. Although private consumption is restricted in all these countries, their residents continue to prioritise tourist spending, especially as the loss of purchasing power due to the energy price crisis has been offset by wage increases.

Little momentum should come from private consumption. Wage increases will continue to be relatively strong due to their one-year delayed adaption to inflation (at least for collective wage agreements, pensions and welfare spendings). Nominal gross wage per capita should rise by 3.5% in 2025 after an increase of 7.8% in 2024, but the loss of purchasing power due to the energy price crisis was already offset. However, boosted purchasing power will hardly translate into higher consumer spending. The relatively high interest rate level to date is encouraging the propensity to save (according to WIFO estimates, the savings rate was over 11% in 2024 and likely to remain there in 2025, i.e., the same as before the financial market crisis of 2008-2009) and it is compounded by poor economic sentiment and increased (political) uncertainty. Conversely, the continuation of the ongoing tax reform could act to shore up savings. Following its implementation between 2022 and 2024, the income tax thresholds will be adjusted upwards in 2025, allowing for higher net wages. (Small) companies should also benefit as the revenue threshold above which taxes are levied will be adjusted from EUR 35,000 to EUR 55,000. Investment activity of companies is expected to only pick up somewhat during the second half of 2025. So far, it has declined due to higher interest rates, high uncertainty, and weaker demand from abroad, particularly Germany. A turnaround in investment is likely to benefit the construction sector, albeit later in 2025. In addition to the slow decline in interest rates, the government adopted a construction stimulus package in spring 2024. Having earmarked EUR 2.5 billion (0.5% of GDP) for the package, the state is primarily promoting social housing projects. However, due to the longer planning period, the stimulus will some time to implement.

EU deficit procedure looms on the horizon

In the past, Austria was counted among the frugal EU countries. This is currently not the case. As pensions, social benefits, and personnel costs in the public sector are linked to inflation, expenditure has risen significantly. Although the electricity price cap will expire at the end of 2024, this will not make much of a difference as the spread versus the actual energy price has recently been rather thin. The ongoing tax reform has reduced public revenue. In the short term, it more than offsets the bracket creep in income tax and also reduces corporate tax revenue. The aim is to support economic growth, which in the medium term should subsequently lead to higher revenue. In 2024 and 2025, the government deficit will probably exceed the Maastricht limit of 3% and debt will move further away from the target value of 60%. This could prompt the EU to bring excessive deficit proceedings against Austria either next spring or summer.

Austria´s current account surplus grew noticeably in 2024 on back of a strong improvement in the goods trade balance due to better terms of trade. Furthermore, the primary income balance profited from a small recovery by the financial service sector which increased dividends of investments abroad. While the goods trade surplus should decrease in 2025 with a small improvement in the domestic demand and therefore higher imports, the primary income balance should level out some of it thanks to even higher investment income supported by an improved service balance, thanks to positive tourism development.

FPÖ the big winner of the 2024 general election

The far-right FPÖ party won the election in the Nationalrat (lower house) on 29 September 2024. It was their first election victory at national level in Austria's history. The FPÖ was able to increase its result from 2019 by an astonishing 12.7 percentage points to 28.9%, which ultimately gave the party 57 out of a total of 183 seats. The majority of the extra FPÖ's votes came from the conservative, Christian Democratic ÖVP, whose result decreased by 11.2 percentage points compared to the last election to 26.3% and thus 51 seats. The result of the social-democratic SPÖ remained unchanged, retaining 41 seats after garnering 21.1% of the vote. The liberal NEOs recorded a slight increase. They gained one percentage point to 9.1% and thus claimed 18 seats, overtaking the Greens. As in many other Western European countries, the Greens lost a significant amount of support, falling by 5.7 percentage points to just 8.2% of the vote or 16 seats. Other parties failed to reach the 4% threshold to enter the Nationalrat.

All parties in the Nationalrat have ruled out any form of cooperation with the controversial right-wing extremist leader of the FPÖ, Herbert Kickl. However, a coalition with the FPÖ is per se possible. This has already happened with the SPÖ and ÖVP at state level and with the ÖVP at national level. Nevertheless, as the FPÖ is currently inextricably linked to Kickl, Federal President Alexander Van der Bellen has tasked the current acting Federal Chancellor and ÖVP Chairman Karl Nehammer with forming a coalition. The negotiations are crystallising into a grand coalition between the ÖVP and SPÖ. However, as they only hold a wafer-thin majority in Parliament, the Neos, a very young party that was only founded in 2012, is expected to join the governing coalition. The Neos do not have much government experience. They were previously in the state government in Salzburg and are currently in Vienna. The relationship between the ÖVP and SPÖ offers potential for conflict as well, especially with SPÖ’s left-orientated chairman Andreas Babler, who ruled out a coalition with the ÖVP before the election. The Neos could act as a mediator here. It would also be the first three-party coalition since 1947. If the negotiations fail, a coalition between the ÖVP and FPÖ (unless Kickl becomes Chancellor) would be conceivable. Whether any coalition would last until the next regular election in 2029 is highly unlikely.

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: December 2024