Gloomy forecast

Economic growth almost non-existent in 2024

Austria's economy faces the threat of stagnation in 2024(Bild: APA/GEORG HOCHMUTH)

Austria's economy will grow significantly less than expected this year due to the weakening construction sector and industry. In their forecast for 2024 presented on Friday, the Wifo and IHS institutes expect real economic growth of just 0.2 and 0.5 percent respectively. In December, they had still predicted growth of 0.9 and 0.8 percent respectively. This means that the domestic economy is threatened with stagnation, but inflation is expected to more than halve. 

After two years of very high inflation, the inflation rate is expected to fall to 3.8 and 3.5 percent this year. In the coming year, economic researchers at the Austrian Institute of Economic Research (Wifo) and the Institute for Advanced Studies (IHS) expect inflation to fall to 2.7 and 2.6 percent respectively. According to the IHS, inflation in Austria will therefore remain well above the eurozone average for some time to come.

High interest rates remain a burden
According to Wifo, high interest rates are currently weighing on investment demand as well as demand for construction services. With the expected easing of monetary policy from mid-2024, including interest rate cuts by the European Central Bank (ECB), the economy should pick up speed again both in the eurozone and in Austria.

Real consumption is expected to rise by 1.2% (Wifo) and 1.4% (IHS) this year, while exports are set to increase by 1.2% and 1.6% respectively. The economic researchers expect real growth in gross domestic product (GDP) in Austria of 1.8% and 1.5% respectively in 2025.

Unemployment on the rise again
The economic weakness is leaving its mark on the domestic labor market. Unemployment has been rising again year-on-year since April 2023. The unemployment rate (according to the national definition) was 6.4% in the previous year and is forecast to rise to 6.7% (Wifo) or 6.9% (IHS) on average in 2024 and fall again to 6.5% or 6.6% in 2025.

The Wifo and IHS forecasts for the government budget deficit differ significantly. The economic research institute expects a budget balance as a percentage of GDP of minus 2.9% in 2024, while the Institute for Advanced Studies only expects minus 2.2%. In the previous year, the budget balance was minus 2.4 percent.