Austria's Economy To See 1.5% Growth In 2025, OECD Forecasts

The Organisation for Economic Cooperation and Development (OECD) anticipates Austria's GDP growth to rebound to 0.2 percent in 2024 and 1.5 percent in 2025, following a contraction of 0.7 percent last year. This recovery is attributed to an improvement in domestic demand, according to the latest OECD Economic Survey of Austria.

Inflation, which surged due to rising energy prices and spread to core services, is expected to decrease from 7.7 percent in 2023 to 3.7 percent in 2024 and further down to 2.9 percent in 2025. The fiscal deficit, as a share of GDP, has reduced from its pandemic peak but remains relatively high at 2.6 percent in 2023. It is projected to stay stable through 2025 without significant improvement.

Continued reforms aimed at boosting productivity, enhancing social mobility, and accelerating climate action could place Austria on a stronger growth trajectory while improving living standards. "Austria’s strong economy is set to recover from last year’s recession. Fiscal reforms, improving spending efficiency and pension sustainability, can help to boost the economy’s resilience to future shocks," said OECD Secretary-General Mathias Cormann.

Cormann also highlighted the importance of rebuilding fiscal space and boosting productivity by reducing barriers to private sector investment and upgrading digital infrastructure. He stated, "Rebuilding fiscal space, boosting productivity by reducing barriers to private sector investment and upgrading digital infrastructure, improving social mobility through enhanced opportunities for women, socio-economically disadvantaged children and migrants, and accelerating climate action by increasing carbon prices and decarbonising transport and energy supply will help drive resilient growth in Austria."

Addressing Long-Term Spending Pressures

Fiscal policy needs to address long-term spending pressures beyond short- and medium-term expenditure reductions. Expenditures on pensions, healthcare, and long-term care are expected to rise significantly over the coming decades due to an ageing population.

There is potential for increasing the efficiency of healthcare spending by shifting services away from hospital care towards strengthening outpatient care. Additionally, shifting some labour taxation towards environmental taxes and recurrent taxation of immovable property would support sustainable growth.

The report suggests that these measures will not only help manage long-term fiscal challenges but also contribute towards a more resilient economic structure capable of withstanding future shocks.

By implementing these strategies effectively, Austria can ensure a balanced approach towards economic recovery while addressing critical areas such as social mobility and environmental sustainability.

With inputs from WAM