National Outlook: Austria

After a soft recession in 2023, growth perspectives are still limited in 2024, 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 momentum in 2025, supported by stabilizing consumption, an expected improvement in economic activity of Austria’s main trading partners and a recovery of industry and construction sectors. Inflation is set to continue a downward path, although it is expected to remain above Eurozone average rates over the forecast horizon. Fiscal consolidation remains to have upward potential, with the general government deficit projected to hover around 3% of GDP in 2024 and 2025 and the public debt-to-GDP ratio expected to remain roughly constant at 78%.

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 by the Austrian government is expected to support the stabilization of the construction sector. In 2025, GDP growth is forecasted to increase to 1.5%.

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, further reduction of energy costs and lower inflationary pressures on industrial goods and food shall contribute to a further lowering of headline inflation rates. However, services inflation remains elevated due to high nominal wage increases. Headline inflation is forecast to gradually ease to 3.4% in 2024 and 2.5% in 2025.  

The labor market has remained resilient, despite the economic downturn in 2023. In 2024, the unemployment rate is expected to decline from 5.1% to 4.9% as a result of continued economic recovery. We expect the unemployment rate to remain unchanged in 2024 and 2025 at 4.9%.

Nominal wages are expected to rise by 7.1% in 2024 and 3.2% in 2025, driven by past inflation and a tight labor market, leading to further increases in real wages over the forecast period.

The general government deficit decreased to 2.7% of GDP in 2023 due to higher revenue from inflation and strong nominal growth. In 2024, it is expected to rise to 3.1% of GDP, driven by delayed inflation impacts on expenditures, increased spending on childcare, housing, climate initiatives, and extended energy support measures. Revenue growth will moderate as inflation eases.

In 2025, the deficit is projected to decrease to 2.9% of GDP with a decline in inflation-driven expenditures and the phase-out of energy price mitigation measures, which will cost 0.1% of GDP in 2025, down from 0.4% in 2024 and 1.4% in 2023.

The government debt ratio, at 77.8% of GDP in 2023, is expected to remain stable at 77.7% in 2024 and 77.8% in 2025, as nominal GDP growth offsets higher deficits and interest expenditure remains stable as a percentage of GDP