After two years of recession, Austria is projected to resume with modest growth in 2025, driven by increased private consumption and a stabilisation of investment. Growth is set to strengthen in 2026 and 2027. After a surge to 3.5% in 2025, inflation is projected to decline over the coming years. The government deficit is projected to remain above 4% of GDP between 2025 and 2027. The government debt-to-GDP ratio is forecast to increase from around 80% in 2024 to 83.9% in 2027.
| Indicators | 2025 | 2026 | 2027 |
|---|---|---|---|
| GDP growth (%, yoy) | 0.3 | 0.9 | 1.2 |
| Inflation (%, yoy) | 3.5 | 2.4 | 2.2 |
| Unemployment (%) | 5.6 | 5.5 | 5.3 |
| General government balance (% of GDP) | -4.4 | -4.1 | -4.3 |
| Gross public debt (% of GDP) | 81.4 | 82.8 | 83.9 |
| Current account balance (% of GDP) | 1.2 | 1.6 | 2.3 |
Overcoming the recession and modest growth ahead
Real GDP contracted in 2024 for the second year in a row, reflecting weakness in the industrial sector, as evidenced by declines in investment, inventories and industrial production. High energy prices and strongly increasing unit labour costs have reduced industrial competitiveness. In 2025, industrial production is showing signs of recovery.
Private consumption is expected to grow at a steady pace in 2025, supported by strong real income gains in 2024 and the slow unwinding of high saving rates. In 2026, these factors are projected to continue to support private consumption, despite contained collective bargaining agreements and new fiscal consolidation measures. Investment has stabilised in 2025 and is expected to gain strength in 2026 and 2027 in line with increased corporate loan demand. Non-residential construction recovered in 2025 whereas construction of dwellings continues to decline. In 2026 and 2027, the construction of dwellings is expected to benefit from lower housing loan rates. Net exports are expected to dampen growth in 2025 against the backdrop of reduced competitiveness and trade tensions. Exports to the US declined by 14% in the first half of 2025, mostly driven by a drop in volatile chemicals exports. A stabilisation of net exports is expected in 2026 and 2027.
Overall, GDP is expected to grow by 0.3% in 2025, by 0.9% in 2026 and 1.2% in 2027.
Rising unemployment
The prolonged period of weak growth has affected the labour market, with the unemployment rate increasing steadily since its post-COVID-19 low of 4.8% in 2022. It is expected to peak at 5.6% in 2025 and then moderately decline to 5.5% in 2026 and 5.3% in 2027. Although the working-age population is starting to decline, labour supply is still growing slowly. This is mostly due to rising female participation, as a result of female retirement age adjustments. After strong wage growth in 2024 to compensate for past inflation, wages are set to grow more moderately over the forecast horizon. Collective bargaining agreements for 2026 provide for wage increases below inflation in export-oriented industries and the public sector. Compensation of employees is expected to grow by 3.7% in 2025, by 2.4% in 2026 and 2.3% in 2027.
Inflation increases strongly in 2025 but declines thereafter
Electricity prices rose sharply in early 2025, as three energy relief measures expired at the same time. Already high services inflation increased further over the summer due to higher public service fees, arising from fiscal consolidation. Food prices and industrial goods prices also came in higher than expected. Overall, inflation is projected at 3.5% in 2025. In 2026, the inflation rate is expected to decline as the effect of the higher electricity prices fades and limited wage growth slows services inflation. In 2027, the introduction of an EU-wide emission trading scheme ETS2 – if not postponed - may reduce energy prices, as the CO2 price is expected to be lower than under the current national scheme. The inflation rate is forecast at 2.4% in 2026 and 2.2% in 2027.
Government deficit remains above 4% despite consolidation efforts
The general government deficit is projected to decline from 4.7% of GDP in 2024 to 4.4% in 2025 and 4.1% in 2026 before increasing again to 4.3% of GDP in 2027. These reductions reflect fiscal consolidation measures adopted for 2025 and 2026.
In terms of expenditure, many consolidation measures will take effect in the second half of 2025 or from 2026, limiting their impact in 2025. Savings this year mainly stem from abolishing the climate bonus (a lump-sum compensation for CO2 pricing), suspending the state-financed upskilling programme, and cutting ministry expenses and climate subsidies. In 2026, a pension adjustment and an average salary increase for public employees both below the rolling inflation rate, along with stricter early retirement rules, will contribute to budget consolidation. However, demographic pressures continue to weigh on public finances and rising healthcare and long-term care costs partly offset these savings.
Taxes on production and social contributions are expected to help reduce the deficit. Additional revenue is projected to come from a stability levy on banks, a prolonged energy crisis contribution from energy producers, and higher health insurance contributions from pensioners. In 2026, retaining a portion of the tax bracket creep and extending the tax rate for top earners are expected to increase revenues further. In 2027, the switch from national carbon pricing to ETS2, if not delayed, will temporarily reduce revenues due to a different accounting treatment.
The government debt ratio is expected to continue rising over the forecast horizon. After reaching 79.9% of GDP in 2024, it is projected to increase to 81.4% in 2025, 82.8% in 2026, and 83.9% in 2027, mainly due to fiscal deficits and subdued GDP growth.