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Fitch: Austrian Election Won't Change Fiscal, Economic Stance
October 17, 2017 / 2:43 PM / 2 months ago

Fitch: Austrian Election Won't Change Fiscal, Economic Stance

(The following statement was released by the rating agency) LONDON, October 17 (Fitch) Austria's general election is unlikely to significantly alter domestic fiscal or economic policies, Fitch Ratings says. However, the performance of the far-right Freedom party (FPO) highlights that populist Eurosceptic parties are not a spent force in European politics. Initial indications following Sunday's vote are that the centre-right People's party (OVP) has won the most parliamentary seats, followed by the centre-left Social Democrats (SPO), narrowly ahead of the FPO, which appears to have picked up over a quarter of votes cast. Final results are likely later this week. A coalition between the OVP-FPO led by OVP head Sebastian Kurz appears more likely than a resumption of the OVP-SPO's grand alliance, which broke down earlier this year, triggering the early election. The FPO's economic policy platform advocates "a market economy with social responsibility" and is more orthodox than those of many other European populist parties. It overlaps with that of the OVP in areas such as tax cuts and less government intervention. Meanwhile, the commitment to fiscal consolidation is broad-based across the Austrian political spectrum, with the FPO wanting "a balanced state budget over economic cycles." As such, the election result does not suggest potential risk to our fiscal forecasts, which see the deficit dropping below 1% of GDP this year and narrowing to 0.5% in 2019. A dynamic labour market and the economic uptick (we see 2017 GDP growth accelerating to 2.4%) will support strong revenues from corporate and income taxes. The recent reform of the stability bank levy entails upfront payments this year, offsetting a projected shortfall from tax reform and cuts to employers' social contributions. We affirmed Austria's 'AA+'/Stable sovereign rating in late July noting that the rating was not conditional on the election outcome. In our view debt-to-GDP will be kept on a declining path because of primary surpluses, low interest payments, strong nominal GDP growth and asset disposals by state-owned "bad banks". Our baseline projections see the ratio of Gross General Government Debt to GDP dropping gradually to 63% at end-2026, although still above the current 'AA' category median. But while the implications for domestic economic policy appear limited, the FPO's performance highlights the continuing appeal of populist and Eurosceptic parties and their ability to shape political agendas. The FPO's anti-immigration views have clearly influenced those of other parties, and the electoral success of Kurz's OVP owes much to its position on immigration, border controls, and Turkey's EU membership. The FPO has tamed its Eurosceptic rhetoric in recent years, and does not advocate leaving the EU or eurozone. But its European policy states that Europe "shall not be reduced to a political project of the European Union", and its presence in government could complicate efforts to find common solutions to address issues such as the migration crisis, or obstruct efforts at further European integration. <a href="https://www.fitchratings.com/site/re/904618">Western Europe Sovereign Credit Overview - 3Q17 <a href="https://www.fitchratings.com/site/re/10000951">Austria Contact: Marina Stefani Associate Director, Sovereigns +44 20 3530 1809 Fitch Ratings Limited 30 North Colonnade London E14 5GN Michele Napolitano Senior Director, Sovereigns +44 20 3530 1882 Mark Brown Senior Analyst, Fitch Wire +44 203 530 1588 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. 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