Revised competitiveness indicators for Austria reflect a comparatively stable competitiveness development of the Austrian economy over the longer horizon

The effect of price/cost competitiveness on national exports and imports, and hence on the current account, is especially important for open economies, in particular for small open economies. In Europe the issue of short-term price/cost competitiveness gained specific prominence after the onset of the global crisis in 2008, although large external imbalances had been identified even before 2008. Across the Eurosystem, various (harmonized) indicators are used to monitor and assess national short-term price/cost competitiveness performance. In Austria, these indicators are compiled by the OeNB in cooperation with WIFO, the Austrian Institute of Economic Research. National competitiveness indicators need to be revised regularly to ensure that they adequately reflect changing country-specific trade patterns, as the reliability of these indicators crucially depends on the weights of individual trading partners. In the current release for Austria, which reflects external trade data for the period from 2010 to 2012, the basic conceptual framework was left unchanged. A comparison of the country weights for six consecutive three-year periods, starting in 1995, that underly the current release highlights the re-orientation of trade flows towards countries that joined the EU in 2004 and 2007 as well as the rising importance of China as a destination for Austrian exports. The current revision of the competitiveness indicators for Austria, as described here, indicates only small variations in Austria’s international competitiveness since 2008. Another purpose of this article is to establish which of the various price/cost competitiveness indicators best reflects our country’s short-term price competitiveness. This is done by estimating standard export and import regressions and comparing the in-sample and out-of-sample fit of models that differ only with respect to the respective real effective exchange rate index. Performance indicators show that models including real effective exchange rates deflated by unit labor costs or by producer prices create comparatively smaller estimation and forecast errors than those using the HICP/CPI.