2024 is projected to be the second consecutive year of recession in Austria. Declining investment, lower exports and weak private consumption are holding back economic activity. However, growth is set to resume in 2025. Investment is expected to recover driven by exports to Austria’s main trading partners. In addition, private consumption is set to support the recovery as the inflationary shock subsides and consumer confidence is restored. The general government deficit is projected to surpass 3% of GDP in 2024-26, while the public debt-to-GDP ratio is forecast to rise above 80% of GDP.
Indicators | 2024 | 2025 | 2026 |
---|---|---|---|
GDP growth (%, yoy) | -0,6 | 1,0 | 1,4 |
Inflation (%, yoy) | 2,9 | 2,1 | 1,7 |
Unemployment (%) | 5,3 | 5,3 | 5,0 |
General government balance (% of GDP) | -3,6 | -3,7 | -3,5 |
Gross public debt (% of GDP) | 79,5 | 80,8 | 81,8 |
Current account balance (% of GDP) | 1,7 | 1,5 | 1,5 |
The recession continues in 2024
Following a period of high inflation, declining real wages and a slump in investment that led GDP to drop by 1% in 2023, the Austrian economy continues to be mired in a recession. In 2024, GDP is expected to decline by 0.6%. Private consumption growth has remained close to zero, despite increasing real wages. High inflation eroded consumer confidence, leading to a significant increase of the saving rate. High interest rates and energy costs continue to weigh on investment, especially in the construction sector and industry. Construction of dwellings has declined by 18% in 2023 and 2024. Weak industrial growth and low corporate investment of main trading partners affect Austria’s industry disproportionately, as it is geared towards producing intermediate goods and machinery for export. In addition, increases in unit labour costs above the EU average have led to a deterioration of Austria’s price competitiveness, which resulted in lower goods exports.
In 2025 and 2026, GDP growth is expected to pick up to 1% and 1.4% respectively as the factors still weighing on growth fade. Private consumption is set to overcome its prolonged weakness as uncertainties recede. Investments are projected to recover with the pick-up of demand from Austria’s main trading partners, the drop in energy costs and easing financing conditions. Moreover, the construction sector is forecast to recover from its deep two-year slump from 2025 aided by monetary easing and by a housing construction stimulus package.
Unemployment is increasing moderately
The prolonged recession in Austria is affecting the labour market, albeit only moderately. The unemployment rate is expected to increase from 5.1% in 2023 to 5.3% in 2024. In 2025, it is set to remain elevated at 5.3%. Following the anticipated economic recovery, it is projected to decrease again in 2026, to 5.1%. The increase in the unemployment rate is mitigated by large cohorts reaching retirement age. However, labour supply is still increasing moderately due to migration and the gradual alignment of women’s statutory retirement age with men’s, which began this year. Nominal wages are expected to increase by 7.5% in 2024 and 3.8% in 2025, driven by past inflation developments. Therefore, real wages are set to rise further over the forecast horizon.
Inflation is coming down
Headline inflation has decreased significantly from 7.7% in 2023 to 1.8% in September 2024. This was mainly driven by the gradual pass-through of lower wholesale energy prices to consumers and the fading of inflationary pressures on industrial goods and food. Services inflation has been more persistent, reflecting high nominal wage growth in 2024 to compensate for the past inflationary shock. However, in 2025 and 2026, wage growth and services inflation are forecast to decrease. Headline inflation is projected to ease from 2.9% in 2024 to 2.1% in 2025 and 1.7% in 2026.
Additional expenditure drives the general government deficit
The general government deficit is expected to increase from 2.6% of GDP in 2023 to 3.6% in 2024. This can be mainly attributed to the indexation of important expenditure positions (public salaries, pensions, social benefits) to inflation, and to additional spending under the national fiscal framework for childcare, health and long-term care, housing and climate. The increase in the climate bonus, a lump-sum compensation for a recently introduced CO2 emissions price, also contributes to this development. In addition, measures to mitigate the impact of high energy prices, such as the electricity price brake, have been extended until the end of the year.
In 2025, the general government deficit is forecast to rise to 3.7% of GDP, due to increased spending on pensions and social benefits, before declining to 3.5% in 2026. At the same time, tax revenues are projected to grow more moderately over the forecast horizon due to easing inflation. Austria’s expansionary fiscal stance in 2024 is expected to become broadly neutral over the forecast horizon.
The development of the government deficit is projected to drive the debt-to-GDP ratio upwards. The government debt ratio, at 78.6% of GDP in 2023, is expected to increase to above 80% over the forecast horizon.