Excessive Deficit Procedure for Austria Increasingly Likely
An improvement in the fiscal deficit to around 4.0% of GDP is expected this year, exceeding the 3% Maastricht threshold and likely triggering an EU Excessive Deficit Procedure. Consolidation measures already committed to and co-ordinated with the European Commission are likely to be broadly sufficient to meet consolidation targets for 2025/26. We expect the deficit to improve slightly to around 3.7% of GDP in 2026.
The elevated 2024 deficit reflects structural pressure points related to high pension and healthcare costs. Age-related costs will rise by around two percent of GDP by 2030, according to the IMF. Austria operates a generous pay-as-you-go pension system, and a series of special pension hikes between 2018-23 (‘außertourliche Pensionserhöhungen’) have added annual budgetary costs of around EUR 1.3bn (0.3% of GDP) according to estimates by the Austrian Fiscal Advisory Council. In this context, a key comparative credit strength of Finland (also rated by Scope AA+ and Stable Outlook) is its high pension reserve, with earnings-related pension assets totalling EUR 270bn (98% of GDP) in Q3 2024, of which around 37% relate to the public sector.
Scope also notes with concern that Austria’s medium-term fiscal balances will be further pressured by increasing interest expenditure (with net interest payments projected to increase to around 1.8% of GDP by 2029 from 1.0% in 2024) and defence expenditure, with a government target of 2.0% of GDP by 2032 from around 1.0% in 2024.
Window of Opportunity to Put Public Finances on a More Sustainable Path
Austria’s credit rating continues to be supported by important strengths, including its wealthy and diversified economy, a strong external position with low private sector debt, a sound banking sector and favourable public debt profile. The central government debt structure is highly resilient, with a long average maturity of 11.71 years, shielding interest costs in the coming years to some extent from higher refinancing rates.