The most important challenges to doing business in Austria are related to the war in Ukraine and disruptions associated with Covid-19. A third area worth mentioning refers to more commonplace concerns such as the competitive and regulatory environments.
The Russian invasion of Ukraine in February of 2022 and the EU sanctions against Russia in response have 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 up inflation. In July 2022, the Austrian statistical office calculated a 9.3% inflation rate, and Austria’s Institute for Advanced Studies (a leading economic research institute) is projecting an annual rate of 7.5% for 2022.
- Reducing energy dependence on Russia, which traditionally supplies around 80% of Austria’s annual natural gas consumption, is a second key challenge. Around half of Austria’s manufacturing and commercial processing, and 20-30% of its residential and commercial heating, depend on (Russian) natural gas. Gas flows have experienced repeated slowdowns, with deliveries from Russia at only 40% of contracted volumes at the end of July 2022.
To mitigate this challenge, the Austrian government has taken several actions. First, the government has set a goal to fill Austria’s natural gas storage to 80% of capacity (76.4 TWh) while diversifying power sources to the extent possible in the current environment. The government has earmarked EUR 100 million per year between 2022 and 2025 to support companies making purchases of non-Russian natural gas. The government has also directed major Austrian industries to prepare for possible gas supply disruptions by developing options for a switch to other energy sources, such as oil. Further, the government announced the creation of a “strategic gas reserve” of 20 TWh in March 2022, including funding of EUR 6.6 billion in the federal budget.
The ongoing recovery from the pandemic presents the second area of concern.
- Global supply chain disruptions bolster the push for national self-reliance paired with high energy and shipping costs make products imported from overseas less attractive.
- This challenge is deepened by the current strength of the dollar against the Euro, which will raise the price of U.S. products and services for Austrian buyers and could affect competitiveness if the exchange- rate shifts prove long-lasting.
- Finally, there is the threat of a fall resurgence of Covid-19 with a new variant that causes higher rates of severe disease or death or is better able to evade vaccine protection or both. As of July 2022, Austria had a vaccination rate of 74% (defined as portion of the eligible population having received two doses). Only 56% of those eligible received a booster (third dose), and 3.1% have had a second booster (4th dose).