Ratings fall

Political crisis continues to drag down the economy

Austria is in a dangerous imbalance.

(Bild: amazing studio - stock.adobe.com)

Growing mountains of debt and the political crisis are dragging the economy down further and further. Now Austria is threatened with a downgrade by the rating agencies. After the negative "surprise" in the federal government, the next budget bomb is now bursting in Vienna. Those responsible are blaming each other ...

The rating agency Fitch has confirmed its AA+ credit rating for Austria. However, the rating outlook has been lowered from "stable" to "negative". This means that Austria is threatened with a downgrade in the near future. This would make it more expensive to take on new government debt. Fitch also expects the European Union to initiate an excessive deficit procedure.

Debt mountain and political crisis drag the country into the abyss
The rating agency cited a higher than expected budget deficit in 2024, a deterioration in the macroeconomic and fiscal policy outlook and the threat of EU deficit proceedings as the main reasons for the change in outlook. The political crisis caused by the failure of the Zuckerl coalition is also cited as a reason.

(Bild: Krone KREATIV)

"Political fragmentation" makes budget consolidation more difficult
Fitch also referred to the failed coalition negotiations between the ÖVP, SPÖ and Neos and the ongoing talks between the FPÖ and ÖVP. "The protracted process of forming a government and the political fragmentation are making it difficult to implement significant budget cuts and are hampering efforts to stimulate the ailing economy," the credit rating watchdogs wrote in their rating report. The political uncertainties following the parliamentary elections in 2024 would make financial and economic policy decisions even more difficult.

Maastricht criteria are far exceeded
According to Fitch, without budget consolidation by the future government, the state budget deficit will deteriorate to four percent of gross domestic product (GDP) this year. Without austerity measures, the rating agency expects public debt to rise to up to 85% of GDP in 2028. In the previous year, Austrian public debt amounted to 79% of GDP.

Austria faces the threat of EU deficit proceedings
Fitch expects EU deficit proceedings to be initiated. It is "unlikely that a new government will take the necessary measures to consolidate the budget" as "the macroeconomic outlook is already weak", the rating agency said in its report. The FPÖ and ÖVP were the first to agree that they want to avoid such a procedure. To do so, however, they would have to submit a consolidation plan to Brussels by January 20. This weekend, the potential coalition partners are eagerly negotiating this issue. 

Stocker and Kickl want to avoid an EU deficit procedure

(Bild: Krone KREATIV/APA/Alex Halada, APA/Herbert Neubauer)

Austria can rely on "strong institutions"
According to Fitch, Austria's diversified domestic economy, the reserve currency status of the euro, strong political and social institutions and solid external finances are positive for its credit rating. The rating agency does not expect a gas price shock in Austria due to the end of Gazprom's gas supplies to the country. The credit rating watchdogs also cited the erosion of Austria's international competitiveness as a negative factor.

Red city councillor Hanke points the finger at the ÖVP

(Bild: Zwefo)

The latest chutzpah comes from Vienna: the deficit is likely to grow to 3.8 billion euros this year instead of the 2.2 billion euros forecast in the budget. City Councillor for Finance Peter Hanke (SPÖ) is not blaming himself for this, but the federal government. It is the "irresponsible financial policy of the ÖVP", which has implemented various tax cuts without taking care of suitable counter-financing. "As a result of the eco-social tax reform and, in particular, the abolition of cold progression, the federal states now have 880 million euros less at their disposal for budgeting."