Deficit probably higher

Austria’s economy is stuck in crisis mode

Domestic industry remains the big problem child for economic experts.(Bild: reneknabl.com)

There is still no particularly positive news for the Austrian economy. According to the latest Wifo/IHS forecast, inflation will continue to fall in the coming year, but unemployment figures will rise - and economic growth is likely to be lower in 2025.

The economic recovery in Austria is falling short of expectations. After two years of recession, the economy is only expected to grow by 0.6 to 0.7 percent in 2025 according to the latest Wifo/IHS forecast. This is less than in the fall forecast, which still predicted growth of 1.0 to 0.8 percent. At the same time, the budget deficit could rise to between 4.2 and 3.7 percent of gross domestic product (GDP) in 2024.

Austerity measures could slow down growth
However, the forecast does not yet take into account any budget consolidation by a future government, as measures such as spending cuts or tax increases are still being discussed in the coalition negotiations between the ÖVP, SPÖ and NEOS.

According to Wifo, reducing the deficit to below 3% could further dampen growth and possibly trigger another recession. Without austerity measures, growth of 1.2 to 1.3 percent is expected for 2026.

Two years of recession leave their mark
Economic output shrank by 1 percent in 2023 and is expected to fall by a further 0.9 percent in 2024. Industry and the construction sector are particularly affected. Private consumer spending, exports and corporate investment also fell. The IHS sees no signs of a recovery in the near future and points to structural problems.

Inflation and unemployment remain an issue
After record inflation rates of 8.6 percent (2022) and 7.8 percent (2023), inflation is expected to fall to between 3.0 and 2.9 percent in 2024. However, it could rise again at the beginning of 2025 as the electricity price brake expires and costs such as energy levies, green electricity subsidies and the CO2 price increase. An inflation rate of 2.3 to 2.6 percent is expected for 2025; in 2026, it is expected to return to the European Central Bank's (ECB) target range for the first time at around 2 percent.

Unemployment is also on the rise: after 6.4% in 2023, it is expected to climb to 7.0% in 2024 and 7.4% in 2025.