Challenges facing the Austrian economy

Austria has a well-performing and wealthy economy. However, maintaining this leading position requires dealing with a number of emerging challenges: Firstly, even as a successful and open economy it has to cope with evolving competitive opportunities and pressures as a direct neighbour to the catching-up economies of Central Europe. Secondly, after having put in place highly flexible and inclusive labour market institutions, it suffers from a weakening performance in certain vulnerable labour market segments. These involve older, less-skilled and immigrant workers and arise from both intense competition from low cost countries and from shortcomings in the tax, benefit and education systems. Third, ambitious new innovation strategies seem to lack fully supportive framework conditions such as the competition environment in service sectors and in the education infrastructure, from pre-school to university ladders. Fourth, although the country enjoys a more sustainable long-term fiscal position than most other OECD countries, the level of public expenditures and taxes remain high and their quality and composition suffer from a number of distortions. This chapter provides an overview of short and longterm economic trends and highlights these challenges, which are investigated in more detail in the subsequent chapters.