Despite high inflation

Light at the end of the tunnel? The economy is recovering

The economists at Wifo (Gabriel Felbermayr on the left) and IHS (Holger Bonin, right) are raising their economic forecast for 2025.(Bild: APA/HANS KLAUS TECHT)

Economic experts are raising their economic forecasts for the current year. In June, the Wifo was still predicting zero growth for Austria's economy, or a "mini" plus of 0.1 percent according to the IHS, but now a plus of 0.3 or 0.4 percent is expected.

The longest economic downturn in the Second Republic would thus be history. However, the economists have significantly raised their inflation forecast for this year.

Economic recovery driven by private consumption
The economic recovery will be driven by private consumption, although foreign trade in goods is still declining in the current year, Wifo explained. The IHS expects economic momentum in 2025/2026 to lag "significantly behind previous recovery phases", pointing to "the subdued international economy and domestic structural problems". For 2026, the economists lowered their economic growth forecast from June by 0.1 percentage points to 1.1 and 0.9 percent respectively. In 2023, real gross domestic product (GDP) in Austria will shrink by 0.8 percent and by 0.7 percent in 2024.

The economists at Wifo (Gabriel Felbermayr on the left) and IHS (Holger Bonin, right) are raising their economic forecast for 2025.(Bild: APA/HANS KLAUS TECHT)

After record inflation rates of 8.6% in 2022 and 7.8% in 2023, inflation will fall to 2.9% in 2024. However, the sideways movement in inflation expected by Wifo and IHS has not materialized this year, with both institutes now forecasting 3.5 percent for the current year. According to the IHS, food prices have "risen sharply" in recent months and, contrary to expectations, the upward trend in prices for labor-intensive services has not abated. In the coming year, Wifo and IHS are forecasting a fall in inflation to 2.4 percent.

Delayed impact on the labor market
The recovery of the economy will be delayed on the labor market: For this year, economists still expect the unemployment rate to rise by 0.5 and 0.4 percentage points to 7.5% (Wifo) and 7.4% (IHS), respectively, according to national calculations. The unemployment rate is then expected to fall to 7.3% next year.

For the first time, Wifo published its medium-term forecast at the same time as its short-term economic forecast. Real GDP growth in the period from 2026 to 2030 is expected to average 1.1% per year. According to Wifo, the Austrian economy is likely to grow 0.2 percentage points slower than the eurozone average in the medium term.