Austria

Third consecutive year of recession

The Austrian economy has started its third year of recession. While it is expected that the decrease in activity will be merely a minor one in the first half of 2025, with even a small uptick in growth forecast for the second half of the year, it will not be enough dynamic to push the yearly GDP growth rate over the growth threshold. The weakness of the economy is mainly due to the recession in industry which originated in Germany. Almost 29% of all Austrian exports (12.5% of the GDP) go to Germany, often in the form of intermediate products for the German manufacturing sector. The latter has been in recession since 2019 and has consequently weighed on the Austrian economy. Although no significant recovery is expected for the sector in 2025, it is at least expected to stabilise at a low level. Conversely, the Austrian construction sector seems to have hit its low point in 2024. Building permits are slowly increasing again and grants of new mortgage loans and property transactions have resumed in the last several months. A slight increase in activity is also expected for the tourism sector. The pre-pandemic level was reached in 2024. The initial figures for 2025 indicate that the moderate growth will continue, partly because purchasing power is slowly returning in the key visitor countries. Slightly positive impetus is likely to emerge in the financial sector in 2025 (4.3% of GDP). The trend should be driven by lower interest rates and the resultant slightly higher demand for credit. In 2024, the European Central Bank (ECB) reduced its key interest rate (deposit rate) by 25 basis points on four occasions to 3.00%. In the spring of 2025, two further 25 basis-point rate cuts ensued which took the deposit rate down to 2.5%. Two further rate cuts should be in the pipeline for 2025 until the “neutral” level of around 2% is reached. This interest rate level should neither slow nor drive up the European economy.

Little momentum is expected to come from private consumption. Household income increases will continue to be relatively strong due to the one-year lag in responding to inflation (at least for collective wage agreements, pensions and welfare spendings). Nominal gross wage per capita should rise by 3.5% in 2025 after an increase of 8.3% in 2024, however unchanged high inflation pressure will eat up most of this increase and result in only a small improvement of purchasing power. The yearly inflation rate surged in January 2025 on back of the termination of the electricity price cap, higher CO2-emission prices and increased grid fees. The inflation rate should post slightly above 3% given price increases in the service sector. While the savings rate reached a high point with 10.6% in 2024, the Wifo Institute only estimates a reduction to 10.2% in 2025 due to the ongoing high level of geopolitical uncertainty. Originally, a further adjustment of income tax thresholds, operating as a delayed part of the (2022-2024) tax reform, was planned for 2025. This last adaptational step was cancelled by the new government to bolster the budget results. Some transfer payments to the lower income groups were refused as well.

Corporate investment is expected to only pick up marginally during the second half of 2025. So far, it has declined owing to durably high interest rates and uncertainty, and weaker demand from abroad, particularly Germany. A turnaround in investment is likely to benefit the construction sector. In addition to the slow decline in interest rates, the government adopted a construction stimulus package in spring 2024. Having earmarked EUR 2.5 billion (0.5% of GDP) for the package, the state is primarily promoting social housing projects. Due to the long planning period, the stimulus will need some time to implement.

EU deficit procedure looming on the horizon

In the past, Austria was considered one of the frugal EU countries. This is currently not the case. Pensions, social benefits, and personnel costs in the public sector are linked to inflation which has driven up expenditure markedly. The tax reform has also reduced public revenue. The incoming government has decided to take a stronger austerity approach. In 2025, the climate bonus will be abolished (extra payment to households to compensate for carbon pricing, EUR -2 billion), there will be cuts to subsidies (EUR -0.9 billion), and educational leave will be abolished (paid working hours for further education, EUR 0.35 billion). On the revenue side, there will be increases through special dividends from state-owned companies (EUR 0.4 billion in 2025), a temporary increase in the stability tax (levy on banks) and the abolition of tax breaks for photovoltaic systems. All these measures together are intended to push the budget to the targeted 3% of GDP and avert an EU deficit procedure against Austria next summer. The initiatives have been in place for less than a year so for the moment it is unclear how successful these measures are.

Austria´s current account surplus grew noticeably in 2024 on back of a strong improvement in the goods trade balance due to better terms of trade. Furthermore, the primary income balance profited from a small recovery in the financial service sector abroad which increased repatriated dividends of investments. While the goods trade surplus should decrease in 2025 with a small improvement in the domestic demand and therefore higher imports, the primary income balance should offset some of the surplus thanks to even higher repatriated investment income, supported by an improved services balance thanks to the uptick in tourism.

Austria’s longest coalition-negotiation finally end with the first “Candy-Coalition”

The far-right FPÖ party won the election in the Nationalrat (lower house) on 29 September 2024. It was their first election victory at national level in Austria's history. The FPÖ was able to improve on the 2019 score by an astonishing 12.7 percentage points to 28.9%, giving the party 57 out of a total of 183 seats. The majority of the extra FPÖ's votes came from the conservative Christian Democratic ÖVP, whose result decreased by 11.2 percentage points compared to the last election to 26.3%, thus leaving it with 51 seats. The result of the social-democratic SPÖ remained unchanged, keeping 41 seats after garnering 21.1% of the vote. The liberal NEOs recorded a slight increase. They gained one percentage point to 9.1% and claimed 18 seats, overtaking the Greens. As in many other Western European countries, the Greens lost a significant amount of support, with its share of seats falling by 5.7 percentage points to just 8.2% of the vote, or 16 seats. Other parties failed to reach the 4% threshold to enter the Nationalrat.

Originally, all parties in the Nationalrat ruled out any form of cooperation with the controversial right-wing extremist leader of the FPÖ, Herbert Kickl. Therefore Federal President Alexander Van der Bellen tasked the then acting Federal Chancellor and ÖVP Chairman Karl Nehammer with forming a coalition, who started talks with the SPÖ and the NEOs to form a “Candy coalition”, named after the colours of the parties, turquoise, red and pink. In early 2025, the NEOs left the coalition talks as they complained about the lack of willingness for bigger reforms from SPÖ and ÖVP. Although SPÖ and ÖVP, alone, would have a majority of 1 vote, the whole coalition talks between all parties broke up. Nehammer relinquished the task of forming a coalition, and Herbert Kickl, the winner of the election, started coalition talks on behalf of the FPÖ with the ÖVP. ÖVP-leader Nehammer, who had always ruled out working with Kickl, stepped down as chancellor and the leader of the ÖVP, and was replaced by Christian Stocker, who was more willing to cooperate with Kickl. However, coalition negotiations failed again as both parties could not reach a compromise in mid-February 2025. As the alternative to a new coalition negotiation would have been a new election in which, according to the polls, the FPÖ would have made even greater gains, the ÖVP, SPÖ and Neos returned to the negotiating table for a further attempt to nail a coalition government. After agreeing to some fiscal reforms, the first candy-coalition was formed, with Christian Stocker appointed as party chairman and the new Federal Chancellor. Unless something happens, the new coalition is expected to continue until the next regular elections are held in 2029.

Payment

SWIFT and SEPA (within the EU) transfers are commonly used for domestic and international transactions and offer a cost-effective, quick, and secure means of payment.

Bills of exchange and, to a lesser degree, cheques are most commonly used as a means of financing or payment guarantee. Nevertheless, neither are widely used nor recommended, as they are not always the most effective means of payment., bills of exchange must meet relatively restrictive mandatory criteria to be valid, which deters business people from using them. In parallel, cheques need not be backed by funds at the date of issue, but must be covered at the date of presentation. Banks normally return bad cheques to their issuers, who may also stop payment on their own without fear of criminal proceedings for misuse of this facility.

Debt Collection

As a rule, the collection process begins with the debtor being sent a demand for payment by registered mail, reminding him of his obligation to pay the outstanding sum plus any default interest stipulated in the sales agreement or terms of sale.

Where there is no interest rate clause in the agreement, the rate of interest applicable semi-annually from August 1, 2002 is the Bank of Austria’s base rate, calculated by reference to the European Central Bank’s refinancing rate, marked up by eight percentage points.

FAST-TRACK PROCEEDINGS

For claims that are certain, liquid and uncontested, creditors may seek a fast-track court injunction (Mahnverfahren) from the district court via a pre-printed form. The competent district court for this type of fast-tract procedure expedites the requisite action for ordinary claims up to EUR 75,000 (previously EUR 30,000).

With this procedure, the judge will issue an injunction to pay the amount claimed plus the legal costs incurred. If the debtor does not appeal the injunction (Einspruch) within four weeks of service of the ruling, the order is enforceable relatively quickly.

A special procedure (Wechselmandatsverfahren) exists for unpaid bills of exchange under which the court immediately serves a writ ordering the debtor to settle within two weeks. However, should the debtor contest the claim, the case will be tried through the normal channels of court proceedings.

If the debtor has assets in other EU countries, the creditor may request the Vienna Commercial Court to issue a European Payment Order for undisputed debts, enforceable in all EU countries (except Denmark).

ORDINARY PROCEEDINGS

Where no settlement can be reached, or where a claim is contested, the last remaining alternative is to file an ordinary action (Klage) before the district court (Bezirksgericht) or the regional court (Landesgericht) depending on the claim amount or type of dispute. Defendants have four weeks to file their own arguments.

With regards to the regional courts, defendants are expected to put forward their own arguments in response to the summons, and are allowed four weeks to do so.

A separate commercial court (Handelsgericht) exists in the district of Vienna alone to hear commercial cases (commercial disputes, unfair competition lawsuits, insolvency petitions, etc.).

During the preliminary stage of proceedings, the parties must make written submissions of evidence and file their respective claims. The court then decides on the facts of the case presented to it, but does not investigate cases on its own initiative. At the main hearing, the judge examines the written evidence submitted and hears the parties’ arguments as well as witnesses’ testimonies. An enforcement order can usually be obtained in the first instance within about ten to twelve months. The Civil Procedure Code provides that the winning party at issue of the lawsuit is entitled to receive full compensation from the losing party of all necessary legal fees previously incurred.

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Enforcement of a Legal Decision

A judgement becomes enforceable when it becomes final. If the debtor does not respect the court’s judgement, the court can issue an attachment order or a garnishment order. Alternatively, the court can seize and sell the debtor’s assets.

For foreign awards, circumstances may vary depending on the issuing country. For EU countries, the two main methods of enforcing an EU judgment are the European Enforcement Order or under the provisions of the Brussels I regulations. For non-EU countries, judgments are recognized and enforced provided that the issuing country is party to an international agreement with Austria.

Insolvency Proceedings

OUT-OF COURT PROCEEDINGS

Out-of court restructuring efforts and negotiations are usually antecedent to insolvency proceedings. They constitute a means to obtain recapitalization loans in exchange for a secured creditor status.

RESTRUCTURING

A pre-requisite for a restructuring proceeding is that the debtor files for the opening and at the same time submits a restructuring plan. This proceeding is either self-administrated or administrated by an administration. For self-administrated restructuring, the debtor must file an application of self-administration complemented by qualified documents and a restructuring plan that provides a minimum quota of 30%.

LIQUIDATION

Liquidation proceedings aim to equitably realise the various creditors’ rights. The proceedings are led by a trustee in bankruptcy which takes control of the business, sells the assets, and divides the proceeds among the creditors.

RETENTION OF TITLE

Similar to Germany, Retention of Title is a written clause in a contract, which states that the supplier will retain the ownership over the delivered goods until the buyer made full payment of the price. This usually takes one of three forms:

simple retention: the supplier will retain the ownership over the goods supplied until full payment is made by the buyer;

expanded retention: the retention is expanded to further sale of the subsequent goods; the buyer will assign the claims issued from the resale to a third party to the initial supplier;

extended retention: the retention is extended to the goods processed into a new product, and the initial supplier remains the owner or the co?owner up to the value of its delivery.

Last updated: March 2025