Two Decades of Austrian Eu Membership – an Economic Growth Success Story

Austria, a country compromising only 1.7% of the current European Union population, significantly benefitted from the accession to the European Union in 1995. In particular, its export-oriented economy has taken great advantages of free trade within the EU, which takes up 70% of the Austrian exports, and also with non-EU countries due to free trade agreements negotiated by the EU 1,2,3. Exports of goods and services increased by 194% from 62bn EUR in 1995 to 182bn EUR in 2016 which translates into a 52% export-to-GDP ratio (as compared to 34% in 1995) (Fig. 1). The accession was accompanied by a revolution of the countries net trade balance from -2bn EUR in 1995, which became positive in 1999 for the first time and increased to +13bn EUR in 2016 (Fig. 2). Besides net trade balance, final consumption expenditures (i.e. household plus government consumption) and growth fixed capital formation (GFCF) contribute towards the total GDP (expenditure approach17) which have increased by 94% (90% for household and 106% for government consumption) and 106% (GFCF) since the accession in 1995 (Fig. 3-4). Economic development as measured by the GDP closely resembles the growth dynamics of Germany, which is the single most important trading partner for Austria (28% of exported goods and services are traded with Germany) (Fig. 5)4. Furthermore, from 2002 on Austria had a persistent current account surplus thereby reflecting excess savings that in turn flow abroad to finance investment in other countries (Fig. 6). Despite this impressing development with GDP growth rates peaking at 3.6% in 2006 and 3.5% in 2007 (average annual increase of 2.5% during 1995-2008), Austria also became affected by the Global Financial Crisis (GFC) by the end of 2008 9 which subsequently led to a contraction of the country’s economy by 3.5% in 2009 (Fig. 5). Consequently the aggregate demand curve shifted to the left i.e. demand at a given price level went down. This effect was driven by less net exports 5,9 (which collapsed by 30% from 2008 to 2009; Fig. 2) and consecutively less corporate investments (going down from 46bn EUR in 2008 to 40bn EUR in 2009, Fig. 7). Moreover, household investments decreased by 3.9% (compared to 2008) thereby reflecting the economic instability introduced by the GFC (Fig 8). Private saving rates would usually be expected to increase after 2008 because of the uncertainty introduced by the GFC; although this pattern was clearly visible within the European Union, Austria contradicted this trend with in fact decreasing private saving rates (Fig. 13), thereby mitigating a drop in consumer demand (and an even deeper recession), and finally explains that household consumption remained relatively unaffected and still increased by +1.1% in 2009 (as compared to +3% in 2008). Nevertheless, the GFC led to higher unemployment rates (+1.2% from 2008 to 2009) and in turn lower levels of inflation (decreased from +3.2% in 2008 to +0.5% in 2009) thereby confirming