Austria, with its well-developed market economy and high standard of living, is closely tied to other EU economies, especially Germany's. Its economy features a large service sector, a sound industrial sector, and a small, but highly developed agricultural sector. Following several years of solid foreign demand for Austrian exports and record employment growth, the international financial crisis and global economic downturn in 2008 led to a sharp but brief recession. Austrian GDP contracted 3.9% in 2009 but saw positive growth of about 2% in 2010. Unemployment has not risen as steeply in Austrmore..ia as elsewhere in Europe, partly because its government has subsidized reduced working hour schemes to allow companies to retain employees. Stabilization measures, stimulus spending, and an income tax reform pushed the budget deficit to 3.5% of GDP in 2009 and 4.7% in 2010, from only about 1.3% in 2008. The international financial crisis caused difficulties for Austria's largest banks whose extensive operations in central, eastern, and southeastern Europe faced large losses. The government provided bank support - including in some instances, nationalization - to prevent insolvency and possible contagion. In the medium-term all large Austrian banks will need additional capital. Even after the global economic outlook improves, Austria will need to continue restructuring, emphasize knowledge-based sectors of the economy, and encourage greater labor flexibility and labor participation to offset growing unemployment and Austria's aging population and low fertility rate.
