Austria Politics October 2017


Austria: The Austrian People's Party victory puts country on right-winged course

October 24, 2017

The Austrian People’s Party (ÖVP) led by Foreign Minister Sebastian Kurz swept 31.5% of the vote in Austria’s 15 October parliamentary elections, leading to a widely expected sweep from right-leaning political parties and clear shift to the right in Austrian politics. The Social Democratic Party of Austria (SPÖ) came in second with 26.9% of the vote, and the far-right Freedom Party of Austria (FPÖ) gained 26.0%. Having led his party to victory with a tough stance on immigration and market-friendly economic policies, Kurz is now one step closer to the chancellorship, although he still needs to form a coalition. The new government will inherit a thriving economy and will not likely have any major impact on economic dynamics in the short term. It will, however, undoubtedly shape Austria’s role in the EU, as Austria will hold the Presidency of the Council of the European Union in the second half of 2018, which will put Kurz’s views on immigration and stricter borders center stage.

In domestic terms, the medium- and long-term economic impact of the election will partly depend on the coalition formed. Many analysts are predicting an ÖVP-FPÖ coalition, which would have relatively clear implications for economic policy. Both of these parties ran on promises of tax cuts and plans to trim down the public sector. Furthermore, they want a stricter stance on immigration and to restrict other EU citizens and refugees from accessing Austria’s labor market and welfare entitlements. Dr. Klaus Weyerstrass, Senior Researcher in Macroeconomics and Public Finance at the Institute for Advanced Studies, commented that the agenda of an ÖVP-FPÖ coalition would include “strengthening Austria as a business location by a more attractive tax system; on the other hand less immigration and more targeted immigration according to the needs of the Austrian labour market (demand for high-skilled people)”.

How Austria’s role within the EU would change under an ÖVP-FPÖ coalition is less clear. The ÖVP has traditionally been a pro-EU party, and Kurz has commented that he is in favor of a united European response on matters of defense and the refugee crisis. Conversely, he will likely be more resistant to further fiscal integration. The FPÖ, on the other hand, has historically had an anti-EU agenda, although it recently took a more neutral stance. It is uncertain whether under this collation the FPÖ would attempt to pressure Kurz to shift farther right.

Regardless of the coalition result, the economy has been benefitting from strong domestic demand as fixed investment and private consumption expanded healthily in H1, and strong export growth fuels the external sector. FocusEconomics Consensus Forecast panelists project that the economy will grow 2.0% in 2018, which is up 0.2 percentage points from last month’s estimate. For 2019, panelists expect the economy to grow 1.6%.

Author:, Economist

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