Revised and New Competitiveness Indicators for Austria Reflect Improvement Trend since EMU Accession

Maintaining and improving competitiveness is one key goal of economic policy. In the short run, it is primarily price and cost developments as well as exchange rate changes that have the biggest impact on the development of an economy’s competitiveness. The competitiveness of Austrian manufacturing exporters has continued to augment since the country’s entry into Economic and Monetary Union (EMU) – this has been confirmed by the 2006 revision of the price competitiveness indicator for Austria (deflated by the (Harmonised) Index of Consumer Prices – HICP/CPI) and even more so by the new cost competitiveness indicator (deflated by relative unit labor costs) launched in this context. The marked improvement of the cost competitiveness indicator in recent years reflects moderate wage policies coupled with comparatively solid productivity growth in the Austrian manufacturing sector. The lower gain measured by the price competitiveness indicator may be linked to the fact that the HICP/CPI was broadly driven by oil price developments in 2004 and 2005, which masked the favorable unit labor cost developments in the manufacturing industry. Contrary to the development in the manufacturing sector, the price competitiveness in Austria’s travel and tourism sector has deteriorated somewhat: Even though price developments in Austria were more favorable than in the competition markets, they did not wholly offset losses in competitiveness related to exchange rate developments.