The conflict in the Middle East is weighing on Austria’s recovery. Growth is set to remain modest and inflation elevated, as the conflict drives up energy prices and uncertainty weighs on consumption and investment. In 2027, growth is projected to strengthen. The government deficit is projected to remain above 4% of GDP between 2026 and 2027. In turn, the government debt-to-GDP ratio is forecast to continue to increase, reaching 84.9% in 2027.
| Indicators | 2025 | 2026 | 2027 |
|---|---|---|---|
| GDP growth (%, yoy) | 0.6 | 0.6 | 0.9 |
| Inflation (%, yoy) | 3.6 | 3.0 | 2.5 |
| Unemployment (%) | 5.7 | 5.8 | 5.6 |
| General government balance (% of GDP) | -4.2 | -4.1 | -4.1 |
| Gross public debt (% of GDP) | 81.5 | 83.4 | 84.9 |
| Current account balance (% of GDP) | 1.1 | 0.7 | 1.3 |
New headwinds for the recovery
Austria’s economy returned to positive growth in 2025, with real GDP expanding by 0.6%. At the start of 2026, this recovery from prolonged cyclical weakness appeared to be gaining momentum. Industrial production had increased and industry confidence reached a two-year high in January. However, the outbreak of the conflict in the Middle East led to an energy price shock that disrupted this positive trend. Rising crude oil prices have led to higher prices at the pump, weighing on real disposable income. Geopolitical tensions have heightened uncertainty, which is already reflected in waning consumer confidence.
Against this backdrop, private consumption growth is expected to remain modest in 2026 at 0.5%. The slow reduction in the still-elevated saving rate is projected to continue, allowing consumption to grow despite disposable incomes falling. Investment began to recover in 2025 after a major slump, but uncertainty and higher interest rates are expected to limit its growth again in 2026. Construction investment is expected to remain slightly negative this year, dragged down by continuing declines in housing investment, before turning positive only in 2027—the first expansion after five years of contraction. Signs of a future turnaround are already visible in the increased demand for housing loans.
Export volumes are expected to strengthen and import volumes to moderate, halting the strong decline in market shares Austria has seen in recent years. However, the trade balance is set to weaken as the energy price shock drives up import prices.
Overall, GDP is expected to grow by 0.6% in 2026 and by 0.9% in 2027, with risks tilted to the downside.
Unemployment remains elevated
The unemployment rate continued to increase to 5.7% last year. Against the backdrop of a weakened growth outlook, the unemployment rate is expected to increase slightly to 5.8% in 2026, before falling to 5.6% in 2027. Although the working age population has started to decline, labour supply is still growing slowly, mostly due to the phased increase in the statutory retirement age for women, which is to be aligned with men’s by 2033. New restrictions on marginal employment, where no social security contributions are paid, are expected to increase working hours per employee. Compensation per employee is expected to grow less than inflation in 2026, reflecting moderate collective bargaining agreements, before partially catching up with the higher price level in 2027.
The energy shock drives up inflation
After a year of elevated inflation due to the reinstatement of electricity taxes, the inflation rate fell at the start of 2026 to about 2%. However, the outbreak of the conflict in the Middle East drastically altered the outlook. At the beginning of April, the prices for petrol and diesel were up by 19% and 42% respectively, relative to the weeks preceding the conflict. Overall, energy inflation, which had been negative in January and February, reached 6% in March and 11% in April. Higher energy prices are set to feed through to the economy, increasing food prices due to higher fertilizer and transport costs. Services inflation is expected to rise as well, especially in 2027. Overall, HICP inflation is projected to reach 3% in 2026 and to fall to 2.5% in 2027.
Government deficit expected to remain above 4% of GDP
The general government deficit reached 4.2% of GDP in 2025 and is expected to remain broadly unchanged at 4.1% in 2026 and 2027. The projected decrease reflects fiscal consolidation measures adopted for 2025 and 2026. A contractionary fiscal stance is expected in 2026 and 2027, corresponding to 0.4% of GDP. The forecast assumes no policy changes and does not account for the 2027 and 2028 budgets under negotiation at the forecast’s cut-off date.
On the expenditure side, fiscal consolidation becomes more visible in 2026, as below-inflation increases in pension adjustments and public sector wages, as well as tighter early retirement rules are expected to reduce current expenditure. Additional restraint stems from reduced capital expenditure linked to climate-related spending. However, these savings are offset by rising costs related to an ageing population, particularly in healthcare and long-term care, as well as higher interest expenditure and an increase in military investments which weigh on public finances.
On the revenue side, indirect taxes and social contributions are expected to help reduce the deficit. In 2026, additional revenue measures include retaining part of the tax bracket creep, extending the tax rate for top earners and anti-fraud measures.
The government debt ratio is expected to continue rising over the forecast horizon. After reaching 81.5% of GDP in 2025, it is projected to increase to 83.4% in 2026 and 84.9% in 2027, mainly due to persistent fiscal deficits and subdued GDP growth.