In 2024, the Austrian economy is set to grow only modestly, held back by weak industrial performance and a struggling construction sector, but supported by private consumption and increasing real wages. Growth is projected to pick up speed in 2025, mainly due to the expected improvement in economic activity of Austria’s main trading partners and to a recovery of industry and construction. Inflation is set to continue on a downward path, although it is expected to remain elevated over the forecast horizon. The general government deficit is projected to hover around 3% of GDP in 2024 and 2025 while the public debt-to-GDP ratio is expected to remain roughly constant at 78%.
| Indicators | 2023 | 2024 | 2025 |
|---|---|---|---|
| GDP growth (%, yoy) | -0.8 | 0.3 | 1.6 |
| Inflation (%, yoy) | 7.7 | 3.6 | 2.8 |
| Unemployment (%) | 5.1 | 5.3 | 5.1 |
| General government balance (% of GDP) | -2.7 | -3.1 | -2.9 |
| Gross public debt (% of GDP) | 77.8 | 77.7 | 77.8 |
| Current account balance (% of GDP) | 1.7 | 1.9 | 1.7 |
Limited growth in 2024
After a recession in 2023, with GDP dropping by 0.8% due to high inflation, declining real wages and a slump in investment, the Austrian economy is expected to recover only slowly. In the first quarter of 2024, economic activity grew modestly by 0.2% q-o-q supported by private consumption but weighed down by declining investments.
Overall, GDP is expected to grow by 0.3% in 2024. Private consumption is projected to pick up from last years’ slump on the back of real wage increases at the beginning of the year following collective bargaining agreements. The high interest rate environment is impacting the construction sector, especially weighing on the construction of single-family homes. The weakness of Austria’s main trading partners, persistently high energy costs and increasing unit labour costs constitute a drag on industrial production. This is reflected in weak growth of goods exports.
However, towards the end of 2024 and more so in 2025, the pressures weighing on investment and exports are expected to fade with interest rates and energy prices projected to decline and external demand set to recover. The recently adopted construction package is expected to support the stabilisation of the construction sector. In 2025, GDP growth is forecast to increase to 1.6%.
Inflation has come down but remains above 2%
Headline inflation has decreased significantly from 11.6% in January 2023 to 4.2% in March 2024. This was driven by the gradual pass-through of lower wholesale energy prices to consumers. Going forward, energy disinflation and lower inflationary pressures on industrial goods and food are set to further lower headline inflation. However, services inflation remains elevated due to high nominal wage increases. Headline inflation is forecast to gradually ease to 3.6% in 2024 and 2.8% in 2025.
A resilient labour market
Despite economic headwinds, the labour market has remained remarkably resilient. The unemployment rate has increased far less than in previous bouts of economic downturn or slow growth, thanks to persistently high vacancy rates and a shrinking working-age population. In 2023, the unemployment rate increased only moderately. In 2024, it is expected to slightly increase from 5.1% to 5.3% as a result of still sluggish growth and the weakness of the construction sector. In 2025, the unemployment rate is set to decline to 5.1% on the back of the continued economic recovery. Nominal wages are expected to increase by 7.1% in 2024 and 3.2% in 2025, driven by past inflation developments and the tight labour market. Therefore, real wages are projected to rise further over the forecast horizon.
Additional expenditure drives the general government deficit
The general government deficit declined to 2.7% of GDP in 2023, mainly due to the inflation-induced rise in revenue and strong nominal economic growth.
In 2024, the general government deficit it is expected to increase to 3.1% of GDP. This increase is set to be fuelled by the delayed effects of inflation on expenditure (salaries, pensions, indexed social benefits), by additional spending under the national fiscal framework in the areas of childcare, housing and climate and by the recently adopted housing and construction package. In addition, several energy-related support measures, such as the electricity price brake, have been extended until the end of 2024. On the revenue side, important tax sources, such as VAT, personal income taxes, and corporate profit taxes, as well as social contributions, are projected to grow more moderately compared to 2023 due to easing inflation.
In 2025, the general government deficit is expected to decrease to 2.9% of GDP based on unchanged policies, largely reflecting a more moderate increase in salaries, pensions and other social benefits due to decreasing inflation and the phase-out of measures to mitigate the impact of high energy prices. These measures are projected to account for a net budgetary cost of 0.1% of GDP in 2025, compared with 0.4% in 2024 and 1.4% in 2023.
The government debt ratio, at 77.8% of GDP in 2023, is expected to remain broadly stable over the forecast horizon (77.7% in 2024 and 77.8% in 2025) as the impact from higher deficits is compensated by nominal GDP growth with a broadly stable interest expenditure as % of GDP in 2024 and 2025.