Austrian Economy Projected To Stabilise In 2025 Following Three Years Of Recession

Austria is anticipated to face its third consecutive year of economic downturn in 2025, according to the European Commission's latest macroeconomic forecast. The country's economy is hindered by low investment, modest consumption, and declining exports, further strained by international trade tensions. Economic growth is expected to resume only in 2026.

The government deficit is predicted to exceed 4% of GDP in both 2025 and 2026. Additionally, the government debt-to-GDP ratio is expected to remain above 80%. In 2023, Austria's real GDP shrank by 1%, followed by a further contraction of 1.2% in 2024. This decline was attributed to stagnant consumption and reduced investment.

The industrial sector's cost competitiveness has been adversely affected by high energy prices and rising unit labour costs. Industrial production fell by 5.4% in 2024. Goods exports decreased by 5.9%, though this was somewhat offset by a 7.1% reduction in goods imports.

In 2025, private consumption is projected to grow modestly, recovering some ground after two years of decline when consumption per capita fell and saving rates reached historic highs. Last year's significant real income gains and a gradual reduction in savings are expected to support consumption despite planned fiscal consolidation measures.

Investment is forecasted to decrease further due to low-capacity utilisation in industry affecting equipment investment negatively. However, construction investment is anticipated to begin a slow recovery, aided by gradually declining housing loan rates.

Trade Dynamics and Future Outlook

The loss of cost competitiveness and the weakness of the industrial sector across Europe are likely to impact Austrian net exports negatively. Last year, exports to the US, Austria's second-largest export market, grew significantly, accounting for 8.5% of total exports. However, current trade tensions pose challenges for exports.

A return to growth is projected for 2026 with strengthening private consumption and positive investment growth. Nevertheless, trade tensions are expected to continue affecting Austria's economic performance overall.

In summary, Austria's GDP is projected to decline by 0.3% in 2025 but is expected to recover with a growth rate of 1% in 2026.

With inputs from WAM