An era of challenges and opportunities

As if the economic challenges following the corona crisis with interrupted supply chains, scarcity of resources and rising inflation were not enough, now, triggered by Russia's war of aggression against Ukraine, there is a veritable energy crisis. Economies such as Austria, Germany and Italy in particular are under pressure to diversify their sources of supply as quickly as possible and to drastically reduce their dependence on Russia as their main supplier. That has consequences.

Energy prices in Europe are putting pressure on private households as well as companies, particularly Austrian manufacturing companies. As long as they produce goods that are hardly traded internationally, this can still be managed as long as the cost increases can be passed on to consumers, at least proportionally For companies that have a high export quota, however, high energy prices mean a significant competitive disadvantage compared to the USA and Asia. Natural gas prices on stock exchanges in Austria amount to just under fifty euros/MWh for 2026, while manufacturing companies in the USA will probably only have to spend ten euros/MWh. The biggest challenge for the coming years will therefore be maintaining the competitiveness of industry — not just in terms of energy, but also because of the profound changes in the labor market.

Industry is important for the Austrian economy in many ways: Research and development in Austria, which is so important for innovations, takes place primarily in the manufacturing sector, which accounted for 66 percent of the total R&D expenditure of all companies in 2019, and the top ten patent applications filed by the European Patent Office (EPO) are exclusively from manufacturing companies. In addition, there are value-added exports in many energy-intensive industries that bring significant benefits to Austria.

These include construction, paper production, metal and wood processing — nine industries in the top ten belong to the manufacturing sector. Accommodation and gastronomy, on the other hand, are only in twelfth place in Austria, despite their high importance. And as a consequence of climate change, the comparative advantage of winter tourism is also increasingly being lost, meaning that production will become more important for exports.
There is a fine line between us being competitive and us achieving our environmental goals. Without a rapid expansion of renewable energies, we will falter. However, this requires space and much faster bureaucracy; the EU emergency regulation based on paragraph 122 of the Treaty on the Functioning of the European Union is a first step: It is intended to significantly speed up permits for the construction of solar power systems, heat pumps and wind turbines. And in the same way that employees and capital enjoy freedom of movement in Europe, energy also needs to be able to travel freely within the EU. The difference in electricity costs in Germany and Austria, for example, is constantly leading to adjustments in power generation, which inevitably leads to additional costs. Expanding cross-border power grid capacities could make a fundamental contribution to reducing these costs.

In Europe, it is often the ‘banana principle’ that applies — build absolutely nothing anywhere near anything. Jobs, innovations and as a result also our prosperity are lost across the board. While the current crisis is hard, at the same time it offers the opportunity to press ahead with the necessary expansion of energy infrastructure and in turn do a valuable service to both our environment and manufacturing companies in Europe.

The labor market is the second major challenge: According to the Austrian industry job monitor, there were 240,000 vacancies across Austria in October 2022. 20,000 of them in mechanical engineering, a further 26,000 in the construction industry. The labor shortage harms us all when orders can no longer be processed and revenues are lost as a result. This now applies to more than seven out of ten of all the companies that, in a survey carried out in April 2022, rated the problem as serious or very serious. Demographic developments will further reinforce this trend. A forecast by Statistics Austria shows a decline in the working-age population from the current 5.5 million to 5.2 million in 2040, with a simultaneous increase in the number of people aged 65+ from 1.7 to 2.5 million.

This increases pressure on public finances — and also on taxpayers and the labor market. It would therefore make absolute sense to carry out the necessary reforms on the labor market and to expand the range of jobs available: 48.2 percent of Austrian women work part-time, including 25.2 percent of women without children and 72.8 percent of women with children under 15 years of age. In order to increase this workforce potential, massive investments must be made in expanding the provision of childcare; in Salzburg, for example, only three out of ten children are currently taught in schools offering a timetable that is compatible with parents’ full-time employment. For the whole of Austria, it is half of all children — with Vienna leading the way on childcare. In addition, the current average retirement age for men in Austria is 60.2 years, significantly below the OECD average of 63.8 years. In Sweden and Switzerland, people work past the age of 65, and in New Zealand even over the age of 68. At 53 percent, the employment rate in the age range of 55 to 64 in Germany is a massive 20 percent below Sweden — that would be the equivalent of around 250,000 people. If we want to keep people on the job market longer, we also need to improve health promotion — especially for physically demanding industrial occupations. And finally, unemployed people in Austria must be better integrated again. Despite a record number of vacancies, 250,000 people were still unemployed in October 2022 — which is not surprising considering that some net wages barely exceed government benefits. A reform of unemployment benefits — with falling replacement rates over time and the abolition of additional income opportunities — as well as tax relief on incomes would have a positive effect — not only on Austria's competitiveness, but also on the social situation of many groups on the labor market, such as parents of school-age children and older employees.

A rethink of Europe as a whole is very much needed. At the beginning of this millennium, the share of GDP of all EU countries in the global economy was 25 percent, on par with the USA. It has now fallen to 18 percent, while the US economy remains at 25 percent. At the same time, China's share has grown from three to 17 percent. The EU is therefore falling behind the USA and China is catching up. The situation is even gloomier when it comes to investments: The global share of gross investment in the EU is only 15 percent, in the USA it is 20 percent and in China as much as 29 percent. The share of patents in the EU has also been falling behind for years: it is now just 18 percent compared to 30 percent in 1999. Although the latest developments in Europe have the potential to give the economy a boost in innovation over the medium term — high prices lead to resource-saving and innovative production processes — the path to this end will only be effective if the necessary reforms are also carried out.

European competitiveness is facing a particularly challenging era. We can do this. But it will require a consistent departure from many familiar habits in the EU: In other words, deregulation instead of bureaucracy, integration instead of isolation, relief instead of new taxes. The economy must not be managed centrally if it is to be successful in the long term. We need to be open to technology, trust in the innovative capacity of people and companies, and provide good framework conditions for creating things that are better — and that needs to happen right now: let’s get on with it!