Oecd Economic Surveys : Austria 1985-1986.

78 Pages·3.616 MB·English

by  OECD

ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
ORGANISATION DE COOPERATION ET DE D t V E L 0 P P E M E N T ECONOMIQUES
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OECD ECONOMIC SURVEYS
AUSTRIA
JULY 1986
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
Pursuanttoarticle I oftheConventionsignedinParison 14th December,
1960,andwhichcameintoforceon30thSeptember, 1961,theOrganisation
for Economic Co-operation and Development (OECD) shall promote
policiesdesigned:
- toachievethe highestsustainableeconomicgrowthandemployment
andarisingstandardoflivinginMembercountries,whilemaintaining
financial stability, and thus tocontribute to the development ofthe
worldeconomy;
- to contribute to sound economic expansion in Member as well as
non-membercountries in the processofeconomicdevelopment; and
- to contribute to the expansion of world trade on a multilateral,
non-discriminatory basis in accordance with international obliga¬
tions.
The Signatoriesofthe Conventionon theOECDarc Austria, Belgium,
Canada, Denmark, France, the Federal Republic of Germany, Greece,
Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal,
Spain,Sweden,Switzerland,Turkey,theUnited Kingdomand the United
States.ThefollowingcountriesaccededsubsequentlytothisConvention(the
datesarcthoseonwhichtheinstrumentsofaccessionweredeposited):Japan
(28thApril, 1964), Finland (28thJanuary, 1969), Australia (7thJune,
1971) and New Zealand (29th May, 1973).
TheSocialistFederalRepublicofYugoslaviatakespartincertainworkof
theOECD (agreement of28thOctober, 1961).
Publiéégalement en français.
OOECD, 1986
Application for permission toreproduceortranslate
all or part ofthis publication should be made to:
Head of PublicationsService, OECD
2. rue André-Pascal, 75775 PARIS CEDEX 16, France.
CONTENTS
Introduction
I. The current recovery and short-term prospects 8
The current recovery compared with its predecessors 8
The pattern of growth during the current recovery 9
Labour market conditions 13
Prices and wages 14
Balance of payments 17
Short-term prospects 19
II. Economic policy 21
An overview 21
Fiscal policy 23
Some medium-term considerations 26
Monetary policy 29
III. The financial system 34
The financial system in a macroeconomic perspective 35
The financial system in historical perspective 36
The structure of the financial system 36
i) The banking sector 36
ii) The securities markets 39
Hi) The money market 41
The operation and efficiency of the system 41
i) Regulations affecting the system 41
ii) The efficiency of the system 43
Corporate finance 47
i) The structure of corporate finance 47
ii) Moves to increase equity participation 48
International transactions 50
IV. Summary and conclusions 53
Economic performance 53
Economic policy 54
The financial system 55
The way ahead 56
Notes and References 57
Annex: Calendar of main economic events 59
Statistical annex 61
TABLES
Text
1. Contributions to GDP growth during the last three recoveries 9
2. Demand and output 1 1
3. Labour market developments 14
4. Incomes, costs and prices 15
5. Exchange rate developments and international competitiveness 17
6. Current balance: recent trends 19
7. Short-term prospects 20
8. The Federal Budget 22
9. Fiscal policy indicators 25
10. Public debt: an international comparison 26
1 1. Monetary developments 31
12. Financial balances 35
13. Financial interrelations ratio 36
14. Market shares in the banking sector, 1976 and 1986 38
15. Cost and profit indicators in the banking sector 42
16. Capital ratios in the banking sector, 1976 to 1985 45
17. The provision of risk capital 49
18. Foreign activities of Austrian banks 52
Statistical annex
A. Gross domestic product 62
B. General government income and expenditure 63
C. Output, employment, wages and productivity in industry 64
D. Retail sales and prices 65
E. Money and banking 66
F. The Federal budget 67
G. Balance of payments 68
H. Merchandise trade 70
DIAGRAMS
1. Recoveries compared 10
2. The labour market 12
3. Cost and price indicators 16
4. Balance of payments developments 18
5. Hard-currency policy: economic fundamentals 28
6. Interest rates 30
7. Monetary indicators 32
8. Bank branches in Austria 44
9. International comparison of pre-tax profit and own capital ratios 46
BASIC STATISTICS OF AUSTRIA
THE LAND
Area(thousand km2) 84 Majorcities, 1981 census(thousandsofinhabitants):
Agriculturalarea (thousandkm2), 1980 37 Vienna 1 531
Exploitedforestarea (thousandkm-) 32 Graz 243
Linz 200
Salzburg 139
Innsbruck 117
THE PEOPLE
Population, 30.09.85 (thousands) 7564 Ncl migration, 1984 I 000
perknv 90 Totalemployment1,monthlyaverage 1984 2744500
Netnatural increasein population. 1985 -2321 ofwhich:
Natural increaserateper 1 000inhabitants. 1985 -0.3 inindustry2 563700
PRODUCTION
Gross Domestic Product. 1985(Sch. billion) I 371 IndustrialoriginofGDPatmarket prices, 1984 (percent):
perhead (US$) 8888 Agriculture 4
Grossfixed investment,average 1982-1984: Industry 27
percentofGDP 22 Construction 7
perhead (US$) I 949 Other 62
THEGOVERNMENT
Publicconsumption. 1985 (percentorGDP) 19 CompositionofFederal Parliament,April 1983:
Generalgovernmentcurrent revenue, 1985 Socialist Party 90
(perceniofGDP) 47 Austrian People's Parly 81
FederalGovernmentdebt,end 1985 (perccnlofGDP)38.5 Liberal Parly 12
Lastelection: 1983
Nextelection: 1987
FOREIGN TRADE
Exports: Imports:
Exporlsofgoodsandservices, 1982-1984 Importsofgoodsandservices. 1982-1984
(percentofGDP)average 38 (percentofGDP)average 38
Exports. 1984(percentoftotalmerchandiseexports): Imports, 1984 (percentoftotalmerchandiseimports):
Food, tobacco,beverages 5 Food,tobacco,beverages 6
Rawmaterialsandenergy 8 Rawmaterialsandenergy 22
Chemicals 10 Chemicals 10
Machineryand transportequipment 30 Machineryand transportequipment 28
Olhcrfinishedandsemi-manufacturedproducts 48 Otherfinishedandsemi-manufacturedproducts 34
THECURRENCY
Monetaryunil:Schilling CurrencyunitsperUSdollar,averageofdailyfigures:
Year 1985 20.69
December 1985 17.69
1. Wageandsalaryearners.
2. Includingadministrativepersonnel.
Note: Aninternationalcomparisonofcertainbasicstatisticsisgiven inanannex table.
ThisSurveyisbasedontheSecretariat'sstudypreparedfor
theannualreviewofAustria by theEconomicandDevelopment
Review Committeeon 5thJune 1986.
Afterrevisionsin thelight ofdiscussionsduringthereview,
final approval ofthe Surveyfor publication was given by the
Committeeon 20th June 1986.
INTRODUCTION
The recovery, which started in 1983, strengthened last year, with the growth of
investmentand exports particularly strong. The oil price fall will lead toa furtherdecline in
inflationtoaround 1xhpercentthisyearand sustain therecentstrengthofdomesticdemand.
GDP is likely torise byjust under 3 percent forthesecond year running, the fastestgrowth
since 1979-80, although unemployment may still edge upwards. The current account,
benefitingfromthefallinoilprices,shouldmoveintosubstantialsurplus,afterhavingbeen in
rough balance in 1985. The recovery is slower than in the past, but it could last longer.
Unemployment,which had remained below 2 percent in the 1970s, has since risen to about
5 percent,whichislowrelativetoothercountriesbuthighbyAustrianstandards,particularly
in the context ofconsensus policies. The modest increase in activity in the present upswing
may be due to fiscal policy imparting less stimulus to demand than in the past as well as a
weaker external environment -slower world trade growth and weaker German expansion
thanonpreviousoccasions. Part IofthepresentSurveyreviewstheseeconomicdevelopments
and the short-term prospects.
Althoughfiscalpolicywasexpansionaryin 1982-83,asbudgetconsolidationeffortswere
temporarily reversed, the fiscal boost was less pronounced than in the 1970s, when the
Governmentattempted tocompensatefortherecessionaryforceswhich wereaffectingother
countries. The increase in the publicdebt-GDP ratio, from 17 percent in the early 1970s to
45 per cent by 1985, has meant that public debt and its servicing costs have become a
constraint on fiscal action and have complicated the budget consolidation efforts. Other
factors which have made the reduction ofthe deficit difficult include the increasing cost of
pensionsand ofindustrial and othersubsidies. Recent fiscal action has stabilised the budget
deficitbuthasfailedtobringanysignificantreductiondespitestrongereconomicgrowth.The
slow progress made in reducing the Federal deficit has put pressure on monetary policy,
requiring higher interest rates than would otherwise have been necessary. Monetary policy
has been tighter than in previous upswings, with real interest rates relatively high. This is in
part because of high real rates worldwide but also because the maintenance of the
hard-currencypolicyhasrequiredanincreasedmarginoverGermaninterestratessince 1984,
the differential having risen at times to over 1 percentage point. This reflects the different
economic performance ofthe two countries on inflation and the fiscal deficit reduction in
particular- but it may also indicate a degree of imperfection in financial markets. These
policy issues are taken up in Part II of the Survey.
Followingtheliberalisationofthebankingsystem inthe late 1970sandearly 1980s, the
financialsectorhasbeenadynamicarea intheAustrianeconomy. Buttheensuingexpansion
mayhaveoccurredtooquickly,withthedifferentinstitutionsextendingtheirbranchnetworks
in pursuit ofincreased market shares and with profit margins being squeezed. In 1985 the
authoritiesthereforeencouraged andsanctionedan agreementbythebankson interest rates
and fees, and a new Banking Law has recently been put in place with the aim, interalia, of
increasing the capital base of the financial institutions to more prudent levels. This is an
interesting case of liberalisation moves leading to some new regulations to safeguard the
operation ofthe system. On the external front, those safeguards have already been in place
becauseofacautiousattitudetowardstheremovalofrestrictionsoncapitalmovements.Such
restrictions have probably entailed a lossofefficiency but may have made the hard-currency
policy easier to implement. The operation and efficiency of the Austrian financial system is
thespecial focusofPart IIIoftheSurvey.TheSurveyconcludeswithasummaryofthesalient
points covered and a discussion of the main policy issues.
1. THE CURRENT RECOVERY AND SHORT-TERM PROSPECTS
The current recovery compared with its predecessors
Following the longest post-war recession, the present economic upturn began in thefirst
quarterof 1983. Comparedwith theprecedingrecoveryfrom 1975 to 1977,growthsofarhas
been rather modest (Table I), largely reflecting a different fiscal stance. The mid-1970s
upturn had been prompted by a strong fiscal expansion, thecumulativediscretionary change
in the fiscal balance amounting to 5 per cent of GDP in 1975-76. By comparison, in the
currentrecoverythediscretionarychangeinthebudgetbalancein 1983amountedtolessthan
1 percentofGDPfollowedbya returntofiscal restriction in 1984tothetuneof 1'/t percentof
GDP. But world trade expansion has been stronger since early 1983 than in the mid-1970s
(1 11/: per cent in 1983-85 against 8'/2pcr cent in 1975-77). In contrast to these two latest
recoveries,theupturn in 1972-73 followeda relativelyshort-livedandweakrecession. Growth
was stronger, with the rest ofthe world also experiencing a more rapid upturn. In addition,
governmentfinanceswerestill insurplus.Onthesecounts,the 1972-73 recoveryisnotstrictly
comparable to the current recovery, which can be better compared with the recovery ofthe
mid-1970s.
Comparingthetwolatest recoveries,asinTable I and Diagram 1,several featuresstand
out:
i) The rise in total domestic demand has been much weaker in the current recovery,
growing on average at only about half the rate of the previous recovery;
ii) Thekeyfactorinthisweakergrowthofdemandhasbeenthecontributionofprivate
consumption which hasbeen oflittle importance in thepresentupturn. In contrast,
themid-1970srecoverywasdrivenbyaspendingboomstimulatedbystronggrowth
of real personal incomes. More recently real incomes have grown rather slowly,
especially in 1984 when the rise in VAT rates was not compensated by higher
wages, so that consumption has been slow to pick up;
Hi) The forces behind the increase in gross fixed capital formation have been different,
with the contribution ofinvestment in machinery and equipment tooutput growth
being relatively weaker this time, picking up with a lag only in 1984 after three
years of continuous falls;
iv) The contribution to growth of the change in the foreign balance has been
substantially better than in the previous recovery, reflecting both weakerdomestic
demand and strongerexport growth associated with a marked increase in market
shares in industrialised countries during 1985;