Austria has a well-developed market economy that welcomes foreign direct investment, particularly in technology and R&D. The country benefits from a skilled labor force, and a high standard of living, with its capital, Vienna, consistently placing at the top of global quality-of-life rankings.
With more than 50% of its GDP derived from exports, Austria’s economy is closely tied to other European Union (EU) economies, especially that of Germany, its largest trading partner. The United States is one of Austria’s top two-way trading partners, ranking fourth in overall trade according to provisional data from 2022. The economy features a large service sector and an advanced industrial sector specialized in high-quality component parts, especially for vehicles. The agricultural sector is small but highly developed.
The Austrian economy rebounded well from COVID, recording a 4.6% GDP growth rate in both 2021 and 2022. The unemployment rate was 4.6% in 2022, lower than before the onset of the pandemic. However, Austria’s economy is forecast to stagnate in 2023, with a 0.3% growth rate, due to the global economic downturn and tighter fiscal measures in response to high energy prices. Inflation soared to 8.5% in 2022, reaching the highest monthly rates in 70 years, with high gas and electricity prices being the primary drivers. Inflation is forecast to remain high in 2023, at 6.5%, before gradually dropping back to 3% and below in the coming years. Businesses list high energy prices and shortage of skilled labor among their main challenges.
The country’s location between Western European industrialized nations and higher-growth markets in Central, Eastern, and Southeastern Europe (CESEE) has led to a high degree of economic, social, and political integration with fellow EU member states and the CESEE. Some 220 U.S. companies have investments in Austria, represented by around 300 subsidiaries, and many have expanded their original investment over time. U.S. Foreign Direct Investment (FDI) into Austria totaled approximately EUR 12.8 billion (USD 13.6 billion) in 2021, according to the Austrian National Bank, and U.S. companies support over 17,100 jobs in Austria. Austria offers a stable and attractive climate for foreign investors.
The most positive aspects of Austria’s investment climate include:
- Relatively high political stability;
- Harmonious labor-management relations and low incidence of labor unrest;
- Highly skilled workforce;
- High levels of productivity and international competitiveness; and
- Excellent quality of life for employees and high-quality health, telecommunications, and energy infrastructure.
Negative aspects of Austria’s investment climate include:
- A high overall tax burden;
- Rising energy costs;
- A large public sector and a complex regulatory system with extensive bureaucracy;
- Low-to-moderate innovation dynamics;
- Low levels of private venture capital; and
- Shortage of skilled labor.
Key sectors that have historically attracted significant investment in Austria are:
- ICT and Electronics; and
Key issues to watch:
- Although Austria has been able to cope with reduced natural-gas imports from Russia (accounting for around 80% of annual demand before Russia’s February 2022 invasion of Ukraine and falling to about 60% of demand for the full year 2022) via diversification of supply and increasing storage levels, possible disruptions in supply could remain an issue in 2023 and 2024. High or volatile natural gas prices as determined by European gas hubs like the Title Transfer Facility (TTF) hub in the Netherlands may also hamper business output. Other factors that could affect energy costs going forward include efforts to reduce natural gas consumption, further diversification of natural-gas supply, and increasing domestic production of natural gas (currently meeting approximately 7% of demand) and non-fossil biomethane.
- Austria’s high inflation rate, reaching 8.5% in 2022 and forecast for 6.5% in 2023, slightly exceeding EU eurozone rates (8.4% in 2022 and 5.6% in 2023, according to EU Commission forecasts), may limit consumption and investment, and dampen short-term economic growth prospects. The government has provided several one-time payments to ease the burden on consumers and businesses, but it is unlikely to continue these supports through 2023.