Auftraggeber: Better Finance – The European Federation of Investors and Financial Services Users
With around 90 percent of the average retirement income received from public pension entitlements, the Austrian pension system
is very reliant on the first pillar. Occupational pensions are primarily offered through pension funds and insurance companies.
Direct commitments are an alternative vehicle, but their usage stagnates. The option for defined contribution (DC) plans with
favourable tax treatment offered either by pension funds or insurance companies boosted the prevalence of occupational pensions
in Austria. While occupational pensions have become more popular over time, low interest rates and a high liquidity preference
dampened demand for individual life insurance contracts. Over the years 2002 through 2022, the performance of pension funds
in real net terms has been positive, with an annualised average return of 0.3 percent before tax. The life insurance industry
followed a distinctly more conservative investment policy and achieved an average annual net real return before tax of 1.4
percent.
This article reports on the latest update of Austria's effective exchange rate indices, which aggregate bilateral exchange
rates and relative prices or costs into indicators of Austria's short- to medium-term international competitive position.
The weighting scheme on which the indicators are based uses bilateral trade data for Austria's 55 most important trading partners.
With the latest update, the three-year averaging period was moved forward to 2016-2018. The main results are as follows: Based
on the recalculated country weights, we confirm the preliminary finding of a medium-term worsening of Austria's competitive
position, although alternative price indices would appear to provide conflicting signals. In particular, measures based on
producer prices and unit labour costs indicate competitiveness gains, while the HICP/CPI-based index shows marked losses.
These diverging signals, however, merely reflect data availability at the current edge. With regard to the geographical focus
of Austria's international trade relations, we observe a further shift toward overseas markets in the US dollar area and China,
away from Western Europe and Russia. The real effective exchange rate for the tourism industry, which we developed during
the previous update and enhanced during this update, reflects a more pronounced appreciation in the tourism sector than in
the service sector as a whole. However, according to the latest figures on overnight stays this loss in price competitiveness
has had no significant dampening effect on tourism demand in recent months. Finally, we address the economic costs of Austria's
current inflation differential to the euro area, which has induced a real appreciation. In two simulations, we quantify realized
effects and calculate expected future losses driven by higher unit labour costs. In total, we find that the loss in price
competitiveness may cause the Austrian economy to shrink by around ¾ to 1 percentage point between 2022 and 2025.
We analyse the emergence of the Vienna Initiative (VI) as a public-private partnership in the wake of the global financial
crisis and its short-term impact on risk metrics of Western European banks and individual countries. We find that adverse
herding behaviour toward banks provides an explanation for banks' (non-)participation in the initiative. The VI measures were
successful in mitigating adverse herding behaviour, underscoring their strong signalling effect on investor sentiment. Additionally,
they attenuated financial market stress in those Central, Eastern and South-eastern European economies that were addressed
by the VI, while having only minor adverse spillovers to those that were not.
Thomas Url, Hermann Buslei, Peter Haan, Johannes Geyer
In contrast to other large economies, the euro area shows a high regional dispersion of inflation rates since the mid of 2021.
The energy price shock uncovered structural differences among member countries of the currency union. Additionally, European
governments responded with administrative or fiscal interventions of varying degree. A consistent pattern emerges with low
inflation countries implementing policies dampening the HICP more intensively, while high inflation countries behaved more
restrained. Potential monetary policy responses to an energy price shock include a differential weighting of country specific
inflation rates in the loss function or, alternatively, macroprudential measures. If a wage-price spiral is set in motion,
the ECB would have to swiftly raise the key interest rates to confirm its commitment to the inflation target.
Auftraggeber: Better Finance – The European Federation of Investors and Financial Services Users
With around 90 percent of the average retirement income received from public pension entitlements, the Austrian pension system
is very reliant on the first pillar. Occupational pensions are primarily offered through pension funds and insurance companies.
Direct commitments are an alternative vehicle, but their usage stagnates. The option for defined contribution (DC) plans with
favourable tax treatment offered either by pension funds or insurance companies boosted the prevalence of occupational pensions
in Austria. While occupational pensions have become more popular over time, low interest rates and a high liquidity preference
dampened demand for individual life insurance contracts. Over the years 2002 through 2021, the performance of pension funds
in real net terms has been positive, with an annualised average return of 1.5 percent before tax. The life insurance industry
followed a distinctly more conservative investment policy and achieved an average annual net real return before tax of 1.9
percent.
We assess the effectiveness of the financial sector stabilisation measures taken by the Austrian authorities in the wake of
the global financial crisis. Employing an event study methodology, we evaluate domestic and cross-border effects involving
Central, Eastern and South-eastern European economies. We identify recapitalisations and public guarantees as the most effective
sovereign interventions. Both mitigate financial market stress at home and abroad. However, a risk-shifting effect emerges
at the sovereign's expense which undermines their effectiveness relative to monetary policy interventions. Moreover, in complement
to the actual implementation, the mere announcement of interventions already mitigates financial market stress, underscoring
the extent of policy credibility.
This article reports on the most recent update of Austria's effective exchange rate indices, which serve to aggregate data
on bilateral exchange rates and relative prices or costs into indicators of Austria's short- to medium-term international
competitive position. As before, the weighting scheme builds on bilateral trade data for Austria's 56 most important trading
partners and a three-year averaging period, which we were able to move forward to the period 2013-2015. Upon recalculation
of existing observations from January 2013 onward, we find confirmation for the medium-term worsening of Austria's competitive
position, but in a less pronounced form than suggested by the previous weighting scheme. On the tail end of the curve, the
COVID-19 crisis in general and short-time work subsidies in particular have distorted several indicators in 2020 and 2021.
With regard to the geographical focus of Austria's international trade relations, we observe a shift away from the large EU
economies towards the USA and China, plus a weaker shift from Northeastern Europe towards Eastern Europe and Turkey. Given
the economic relevance of tourism for Austria, we newly created a real effective exchange rate for the tourism industry. In
this segment of the economy, we see a more pronounced appreciation than in the service sector as a whole from 2015 onward,
which would normally imply a decline in tourism services output. That Austria's tourism industry clearly continued to thrive
indicates that the appreciation coincided with an upward shift of prices and supply toward higher quality segments.
With around 90 percent of the average retirement income received from public pension entitlements, the Austrian pension system
is very reliant on the first pillar. Occupational pensions are primarily offered through pension funds and insurance companies.
Direct commitments are an alternative vehicle, but their usage stagnates. The option for defined contribution plans with favourable
tax treatment offered either by pension funds or insurance companies boosted the prevalence of occupational pensions in Austria.
While occupational pensions have become more popular over time, low interest rates and a high liquidity preference dampened
demand for individual life insurance contracts. Over the years 2002 through 2020, the performance of pension funds in real
net terms has been positive, with an annualised average return of 1.4 percent before tax. The life insurance industry followed
a distinctly more conservative investment policy and achieved an average annual net real return before tax of 2.1 percent.