Market Challenges
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The most important challenges to doing business in Austria are related to the war in Ukraine, which has disrupted the energy market, brought significant inflation and higher interest rates, and created additional supply chain challenges. A second area worth mentioning refers to more universal concerns such as the competitive and regulatory environments.
The Russian invasion of Ukraine in February of 2022 and the sanctions imposed on Russia by the EU in response have together created a new set of challenges and uncertainties for the Austrian economy.
- The first and most visible concern is inflation. Significantly higher energy prices, as well as somewhat higher food prices, together with pent-up post-Covid demand, high shipping costs, ongoing supply chain bottlenecks, and a tight labor market, have driven inflation over 8% in 2022. Economists are predicting moderate easing in 2023.
- Rising interest rates have put a brake on Austrian economic growth, making it more expensive for companies to finance new endeavors and exacerbating existing tensions in the commercial real estate market. The prime lending rate in Europe rose from 0.5 in July of 2022 to 4.25 in August of 2023. Economists are forecasting a mild recession (-0.8%) in 2023.
- The second set of market challenges are those associated with a sophisticated, highly regulated and wealthy economy. Products and services sold in Austria must meet EU-wide standards, certifications, registration and marking rules, and in some cases, additional Austrian regulations. Labor costs rank among the highest third of EU countries, and U.S. companies face stiff competition from Austrian, European and multinational corporations.
- Reducing energy dependence on Russia, which has traditionally supplied around 80% of Austria’s annual natural gas consumption, is another key challenge. Around half of Austria’s manufacturing and commercial processing, as well as 20-30% of its residential and commercial heating still depends on (mostly Russian) natural gas. Though it has thus far reduced its dependence on Russian natural gas from 79% in February of 2022 to 64% in April of 2023, the country’s largest natural gas importer OMV has begun to announce infrastructure investments and stronger commitments to non-Russian suppliers. The continued flow of Russian gas is at least partly due to a binding “take or pay” agreement signed by OMV with Gazprom in 2018 and stretching to 2040.