2023 Austria Outlook
Austria´s economy is greatly influenced by developments in its major trade partners, the United States and Germany, by the exit and entry of corporations, and by start-ups scaling up. In recent years, Austria has faced COVID, a recession, political instability (5 chancellors in 5 years), corruption, financial turmoil (brought on by COVID measures), the effects of the Ukraine war, and finally, energy cost spikes and inflation.
On the other hand, there is an interest on the part of both Austrian companies to expand to the United States and some US companies to come to Europe. But will they choose to set up operations in Austria? This remains an open question, given the high cost of labor – not in salaries but in wage-related taxes.
Austria is struggling with ageism: older prospective hires are being denied employment, while mature and thus more expensive employees are shown the door under the guise of “downsizing.” Whatever the short-term benefits to companies’ bottom lines, the country is taking steps to counteract these ultimately harmful practices. Austria has introduced incentives to encourage more significant employment of this older demographic, as the shortage of specific skills and an aging population has put strains on the economy.
For example, to counter the lack of doctors willing to accept the Ecard (socialized medical system), doctors have recently been granted permission to work until 70 in the Ecard system.
Financial Services and Fintech
Digital restructuring and transformation continue, but several banks are feeling the effects of substantial assets in Ukraine and Russia. There has been a change of leadership in both larger and smaller financial institutions. The regional importance of Austria as a CEE (Central and Eastern Europe) center has decreased due to perceived risks that include political turmoil, corruption, and market size. Germany is now seen as an attractive expansion market. A shortage of key technical staff, especially software developers, and a reaction to a fall in salaries since 2019 has created the environment for talent exiting for opportunities outside of Austria.
Another trend that follows the model of many US banks is balancing the corporate and investment banking portfolio with retail and consumer banking. In the last few years, new entrants have included various types of FS (financial services) institutions from IFC (International Finance Corporations), fintech /start-ups in the payments services, and software-related vendors in the security sector.
The drive for electric/ self-driving technology has chiefly occurred in Germany, not Austria. But after COVID, logistic firms have grown, and some fortune 50 companies in the global technology, supply chain and manufacturing solutions partner — have tripled their business, though not necessarily locally and so expansion is also not local. Politically, the government is providing incentives to discourage car use and encourage bicycle/scooter transport. It is also building more public transit infrastructure. There is even talk of a “large car” tax.
On the other hand, Austria has a competitive paper and packaging sector is going strong, with mergers & consolidations being completed, geographic expansions to the US and investments in “innovative” complementary start up technology.
The pharmaceutical /biotech industry is expanding with start-ups like mySugr (sic), a highly acclaimed diabetes management app, and Hookipa Pharma being headquartered growing at a healthy pace. Austria has also succeeded in bringing a renowned Biotech scientist back to Austria from the US to lead the elite postgraduate university Institute of Science & Technology Austria to transform it to an interdisciplinary research network similar to Cambridge and Oxford, thus generating talent but also synergies to Corporates. Austria’s university medical research centers also carry out world-class research. But still, compared with times when Austria was a regional CEE Headquarter for firms such as Baxter, Eli Lilly, and Pfizer, the sector is certainly smaller in terms of jobs. Expansion continues with the growth of medical doctor entrepreneurs offering private services, establishing companies manufacturing vitamin or beauty supplements, or other OTC ((over-the-counter) products but these are local market companies.
The real estate market continues to boom, with inflation not dampening rent increases and housing prices. Office space is facing a crisis, but the domestic real estate market is flourishing, for direct use as well as an investment tool.
(Digital) IT skills are in high demand across the board, and some start-ups focus on AI. Often companies are “decentralized,” with employees working in various locations. But this sector is growing and perhaps will reach the status it had 15 years ago.
Professional Services Industry
All professional service fields have grown, with companies offering services in everything from strategy to roll-outs, outsourcing, and legal. In some cases, teams have moved to increase service offerings and diversify portfolios. What is seen is that in anticipation of governance requirements (ESG, etc) , digital transformations, effects of the war and regulations, professional services companies are flourishing with even creation of “growth practices” to accompany clients on new strategies and more scale in new markets. .