The Current Account and its Components in 1994/95
The deficit of the current external account is set to widen to Sch 19 billion in 1994 and 25 billion in 1995. Developments in the trade balance are, by themselves, no major cause for concern. However, a decline in tourism competitiveness implies that the traditional surplus of this sector will cover an ever falling part of the merchandise trade deficit. Moreover, the deficit in the transfer balance rises markedly with Austria's contribution to the EU budget. Since 1993 the balance on current account has progressively deteriorated. For the first time since the early 1980s, the deficit may exceed 1 percent of GDP in 1995. Still, recent developments are no immediate cause for concern. High net capital inflows over the last years underline the high credibility of Austria's economic policy and allow smooth financing of small current account deficits. The recent deterioration of the current account is the result of compounded special factors. One is the growth differential between Austria and other European countries in 1993 and 1994 which has accelerated the growth of exports over imports. A decline in disposable income in Germany during the recession hit the domestic tourism industry in particular while spending by Austrians abroad rose markedly. Another factor is the substantial rise in the real-effective schilling exchange rate, by 2.6 percent in 1992 and 3 percent in 1993. While the manufacturing sector has been able to largely offset the resulting weakening of competitiveness by productivity gains, these are more difficult to achieve in tourism and other services. A third reason for the rising external deficit is the composition of foreign versus domestic demand. Imports are more highly concentrated on finished items such as investment goods than exports. The cut in the general investment tax allowance as of April 1994 induced many firms to pre-emptive spending on machinery and equipment which, by boosting imports, led to a higher trade deficit in the first quarter of the year. Moreover, with Austrian tourism exports concentrated on the German market and in particular the lower and middle-income strata, the squeeze in German household incomes had a strong negative effect on the services balance. The recovery in Europe may be expected to lead to an improvement in the Austrian current account. Nevertheless, recent developments should be taken as a warning sign. Net transfers to the EU will burden the transfer balance by Sch 12 billion in 1995 and rise progressively thereafter. This and the prospect of further losses in tourism market shares may be taken as auspices that the traditional quasi-zero balance in the current account may no longer be taken for granted.
Determinanten der Leistungsbilanzentwicklung 1994/95; The Current Account and its Components in 1994/95
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