In contrast with the above-average economic growth Austria has enjoyed over the last ten years, 2014 brought disappointing results, with Austrian GDP growing significantly more slowly than the euro area average. This weak economic momentum was attributable to the slowdown of dynamics in all major GDP components. From summer 2015 we expect some revival of economic development, with acceleration coming in 2016. However, Austrian GDP (0.8%) is still expected to grow at a lower rate than the euro area average (1.3%). Despite the fact that Austria remains highly competitive compared to many other European countries, some worrying changes have been observed in recent years.
Government debt and budget deficit in 2014 outperformed forecasts at a level lower than expected due to the less significant than previously estimated effects of ESA 2010 upon debt and the deficit. According to the Ministry of Finance, the government remains committed to the consolidation path and is determined to maintain the structurally balanced budget over the next years. The spread between German and Austrian government bond yields has been fluctuating since the beginning of the year at a low level in the narrow band width between 5bp and 20bp. We would consider a spread of 10-20bp as adequate to the current market situation. The lower liquidity of the Austrian bond market in comparison with the German one and the need for faster and more extensive implementation of effective reforms from the Austrian government explain the difference in yields.
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