Austria Faces Productivity Crisis

Austria Faces Productivity Crisis

APA/GEORG HOCHMUTH

The Productivity Council, established in 2022 under the chairmanship of Fiscal Council President Christoph Badelt, warns that Austria’s competitiveness is at risk, partly due to shortcomings in digitalization and energy policy. In its “Productivity Report 2024,” the council calls for a realignment of economic policy and recommends, among other things, a comprehensive digitalization initiative and a faster expansion of renewable energies to the new government.

Badelt explained that in the 1980s, labor productivity grew by more than 4 percent per year on average. However, in 2023, productivity growth was less than 0.5 percent, according to Badelt during the presentation of the 157-page report.

Greenhouse Gas Reduction Goals Likely to be Missed

“Austria stands at a crossroads,” said Badelt. “Rising labor and energy costs are burdening the competitiveness of exporters, while the shortage of workers is further hindering growth. Although incomes in Austria are high, not all population groups benefit from them, and the extent of absolute poverty has increased recently.” The green transformation and digitalization will require significant investments, which are made more difficult by the recession and tight budgetary conditions, he added. “We have made progress with the green and digital transformation, but we are likely to miss the greenhouse gas reduction targets.”

A stronger use of digital technologies could significantly improve productivity, said economist Andreas Reinstaller from the Office of the Productivity Council at the National Bank, who co-authored the report. In key areas like IT professionals, infrastructure, and application by companies, Austria is at “best middle-tier in the EU, and in many areas, a laggard.” Meanwhile, the EU as a whole does not fare particularly well internationally.

Expanding Renewable Energy and Energy Infrastructure

Another recommendation to the new government is to accelerate the expansion of renewable energy and energy infrastructure. In Austria, the coupling of gas and electricity prices is stronger than in other countries, amplifying price effects, while companies’ substitution options are limited. However, energy costs account for a relatively small portion of total costs for most companies. “Even in the so-called energy-intensive sectors, the average energy intensity is about 3 percent of costs.” At some companies, this share is much higher. “75 percent of total energy consumption in Austria’s industry is accounted for by around 170 companies.”

The Productivity Council’s recommendations are directed not only “to a fictional government that we hope will be formed soon,” but also to Parliament, said Badelt. He referred to the Electricity Act (ElWG), “which unfortunately did not receive the required two-thirds majority in Parliament and thus could not be passed in the last legislative period. This is really a setback because many things could have been clarified and regulated that we will need.” This must be urgently addressed and should be a topic during coalition negotiations.

Linking Retirement Age to Life Expectancy

The shrinking working population is slowing economic growth, warns Badelt. To mobilize the labor potential, he recommends measures to increase the employment rate of women and older people. More childcare spaces and flexible working time models for women are needed for this. The retirement age should be linked to life expectancy and gradually raised.

The council also recommends strengthening early childhood education to improve equality of opportunity in the labor market. Although additional funds for improving care and education for preschool-aged children have been allocated in the 2024–2028 financial settlement, there is still a lack of uniform quality standards and clear objectives. Specifically, the council recommends language support for children with a migration background and a second mandatory year of kindergarten. For many children, their German skills are so inadequate at school entry that they cannot follow lessons and will later not be available to the labor market. “We could and should not afford to forgo these workers.”

The Productivity Council analyzes Austria’s long-term productivity and competitiveness and provides recommendations to the federal government in its annual report to the National Council. The five-member body, chaired by Christoph Badelt, is supported by an office located at the Austrian National Bank. The current Productivity Report 2024 is available for download: Productivity Council – PROD Annual Report 2024.

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