In Vienna, Austria, customers are shopping for vegetables in a supermarket. Photo by He Canling, Xinhua News Agency reporter.

Austria's economy is gradually recovering this year, but the new government still faces some difficulties and challenges. In addition to issues such as inflation, increased fiscal deficits, rising unemployment rates, and declining export competitiveness, the more urgent issue is the energy structure. How to promote the transformation of the energy structure, especially to grasp the relationship between energy security, social stability, and economic development, will be a major test for the new government.

Recently, the Austrian Freedom Party won the National Assembly election, with more votes than the current ruling People's Party. Analysts believe that the main reason for the Freedom Party's emergence is the anxiety and dissatisfaction of the country's people with issues such as immigration, inflation, and Ukraine.

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According to the election results announced by the Austrian Ministry of the Interior, although the Freedom Party won, it did not obtain more than half of the seats in the National Assembly, so it cannot form a cabinet on its own. The leader of the Freedom Party, Herbert Kickl, intends to serve as the new government's prime minister, but it is difficult. Austrian President Van der Bellen asked the main political parties on October 9 to hold talks to coordinate positions and break the deadlock in the formation of the new government to deal with the urgent problems faced by the country. At present, the Austrian political arena is still in full swing for various negotiations and consultations. No matter who laughs last, the new government will face the big test of livelihood issues.

Although from the perspective of economic data, Austria's economy is gradually recovering this year, it still faces some difficulties and challenges. The first is the issue of inflation. It is expected that Austria's average inflation rate this year will drop to about 3.4%, but the high inflation in recent years has had a more serious negative impact on household purchasing power, especially the soaring prices of food and energy, which has caused complaints from the public. In addition, high energy and labor costs have also affected the confidence of residents' consumption and corporate investment. It is expected that Austria's fixed capital investment will decrease by 1.9% this year, mainly manifested in the downturn of the construction industry and high financing costs.

The second is the increase in government fiscal deficits. It is expected that Austria's fiscal deficit in 2024 will account for about 3.3% of GDP, mainly due to increased social welfare expenditures and changes in tax policies, such as the government reducing corporate income tax to reduce the burden on enterprises, and adjusting tax brackets according to inflation.

The third is the rise in unemployment rates. It is expected that Austria's unemployment rate this year will reach 6.7%, slightly higher than last year. The pace of economic recovery is still slow, and the pressure on the labor market continues to exist.

The last is the decline in export competitiveness. Although the tourism industry has performed well and has returned to pre-pandemic levels, due to the general increase in labor costs and costs in the industrial manufacturing sector, the competitiveness of some export-oriented industries is obviously weak.

The current problems in Austria's economy are not easy to solve, and the most urgent issue facing the new government is still the energy issue. As winter is approaching, how to effectively reduce the cost of production and life while ensuring a stable supply of natural gas is not a simple task. Moreover, the Austrian government also bears a heavy "political burden," that is, it must accelerate the process of getting rid of dependence on cheap Russian natural gas. This "weaning" process is bound to be painful.

Since the outbreak of the Russia-Ukraine conflict in 2022, the EU has taken action to quickly reduce the import of Russian natural gas, and last year the proportion of natural gas imported from Russia has been reduced to 15%. The EU has committed to gradually phase out Russian natural gas by 2027, and currently only Austria and a few Eastern European countries still import a large amount of Russian natural gas. According to statistics, in July of this year, 83% of Austria's natural gas imports still came from Russia. This will inevitably cause dissatisfaction among other EU member states, and the political pressure on the Austrian government is increasing. The Austrian government has also stated many times that high dependence on Russian natural gas is a major economic and security risk for Austria.However, achieving true import substitution is no easy task. Austria's energy structure and infrastructure determine that it is difficult to completely break away from Russian natural gas in the short term. Natural gas accounts for a high proportion in Austria's energy structure, approximately a quarter of Austria's primary energy consumption, with even higher dependency in the heating and industrial sectors. Russian natural gas accounts for more than eighty percent of Austria's total imports. What can be done at present is to increase natural gas supplies from countries such as Norway, and at the same time expand natural gas storage by importing liquefied natural gas through pipelines in Germany and Italy, but the facility's full load rate has already exceeded ninety percent.

It is evident that regardless of which political party forms the government, its room for maneuver in the economic field is limited, but the specific policy measures will lead to significantly different outcomes.

As for the Freedom Party, historically it has been more friendly towards Russia. Herbert Kickl has repeatedly publicly opposed EU sanctions on Russia, believing that these sanctions have had a negative impact on the European economy, particularly energy prices. Assuming Herbert Kickl takes office, Austria may adopt a more pragmatic and neutral attitude, prioritizing Austrian economic interests while ensuring energy security, rather than completely severing supplies from Russian gas. If the People's Party continues to govern, Austria will continue its policy of gradually reducing dependence on Russian energy in the future, and accelerate the promotion of energy diversification, increasing gas storage capacity, and promoting the development of renewable energy. In addition, the Green Party's push for renewable energy policies may play a key role in the future new government. The party has always strongly advocated for accelerating energy transformation, reducing fossil fuel consumption, and seeking more EU support to accelerate the break from dependence on Russian energy.

Although "weaning" will be difficult, it is a challenge that the new Austrian government must face. How to formulate policies to break away from Russian natural gas while also promoting the transformation of the energy structure, especially grasping the relationship between energy security, social stability, and economic development, will be a significant test for the new government.