Austria is projected to experience its third consecutive year of economic recession in 2025.
This results from low investment, modest consumption and declining exports, exacerbated by international trade tensions. Growth is set to resume only in 2026. The government deficit is projected to be above 4% of GDP in 2025 and 2026, and the government debt-to-GDP ratio is forecast to remain above 80%.
| Indicators | 2024 | 2025 | 2026 |
|---|---|---|---|
| GDP growth (%, yoy) | -1,2 | -0,3 | 1,0 |
| Inflation (%, yoy) | 2,9 | 2,9 | 2,1 |
| Unemployment (%) | 5,2 | 5,3 | 5,2 |
| General government balance (% of GDP) | -4,7 | -4,4 | -4,2 |
| Gross public debt (% of GDP) | 81,8 | 84,0 | 85,8 |
| Current account balance (% of GDP) | 2,0 | 2,4 | 2,3 |
The recession continues in 2025
Real GDP contracted by 1% in 2023 and by 1.2% in 2024, due to stagnant consumption and declining investment. The cost competitiveness of the industrial sector has suffered due to high energy prices and strongly increasing unit labour costs. Industrial production declined by 5.4% in 2024. Goods exports shrank by 5.9%, counterweighed by goods imports going down by 7.1%.
In 2025, private consumption is expected to grow modestly, recouping some lost ground after two weak years when consumption per capita declined and saving rates reached historically high levels. Last year’s strong real income gains and a slow unwinding of savings are set to support consumption, despite the planned fiscal consolidation measures. Investment is expected to decline further, with low-capacity utilisation in industry weighing on equipment investment. By contrast, construction investment is expected to start recovering slowly, supported by slowly declining housing loan rates. The loss of cost competitiveness and the weakness of the industrial sector in Europe is set to be a drag on Austrian net exports. Last year, exports to the US, Austria’s second most important export destination, grew dynamically reaching 8.5% of total exports, but this year, trade tensions create headwinds for exports.
In 2026, a return to growth is projected, with strengthening private consumption and investment growth turning positive. However, trade tensions are projected to weigh on Austria’s economic performance.
Overall, in 2025, GDP is expected to decline by 0.3%. In 2026, growth is projected to pick up to 1%.
Unemployment is increasing moderately
The prolonged recession has affected the labour market. The unemployment rate has been increasing slowly but steadily since its post-COVID 19 trough of 4.8% in 2022. It is now expected to peak at 5.3% this year. As the economy picks up in 2026, unemployment is expected to reduce to 5.2%. Austria reached a demographic turning point this year with the working age population starting to decline, but the labour supply is still growing slowly. This is mostly due to an increase in female participation, as a result of the steady increase in the statutory retirement age of women, which is being adjusted upwards by six months each year to be aligned with that of men in 2033. Wages per employee grew by more than 8% in 2024 as workers were compensated for past inflation via collective bargaining agreements. Going forward, wage growth is projected to ease gradually, driven by the labour market slack and lower inflation.
Inflation remains above 2%
In the first quarter of 2025, the inflation rate increased to 3.3% due to a strong increase in retail energy prices. This was mainly driven by expiring energy relief measures such as reinstated fees on electricity and high wholesale oil and gas prices at the beginning of the year. Persistent services inflation also contributes to the elevated inflation rate in 2025, at 2.9% In 2026, inflation is projected to go down again, supported by lower energy commodity prices and the slowdown of unit labour cost, averaging 2.1%.
A government deficit above 4% despite consolidation efforts
The general government deficit is projected to decrease from 4.7% of GDP in 2024 to 4.4% in 2025 to 4.2% in 2026. Fiscal consolidation efforts are taking place, amounting to around 1.1% of GDP in 2025.
On the expenditure side, this includes the abolition of the climate bonus (a lump-sum compensation for CO2 pricing), the elimination of a state-financed upskilling leave and cuts in public consumption. However, the increased spending on public salaries, pensions and social expenditure due to inflation indexation, as well as other ageing-related costs, continue to weigh significantly on public finances, reducing the effects of the consolidation package substantially.
On the revenue side, taxes on production and social contributions are projected to contribute to the reduction of the deficit. Some consolidation measures, such as the increase in the stability levy for banks, the extension of the energy crisis contribution for energy producers and the rise in the health insurance contributions of pensioners, are also set to generate additional revenues. At the same time, revenue growth from personal and corporate income taxes is projected to slow down over the forecast horizon, reducing the impact of the consolidation efforts.
A still high general government deficit in the context of muted GDP growth is projected to drive the debt-to-GDP ratio upwards. At 81.8% of GDP in 2024, the government debt ratio, is expected to increase to 84.0% in 2025 and 85.8% in 2026.