Economic Outlook in Austria: High Inflation and Stagnation Until 2026
The Austrian Institute of Economic Research (WIFO) has published a comprehensive analysis of economic development and inflation forecasts for Austria, covering the years 2024 to 2028. The study shows that Austria will continue to struggle with high inflation until mid-2026 before the European Central Bank's (ECB) target of two percent is reached. At the same time, the economy will not see a slight recovery until 2025.
The Austrian Institute of Economic Research (WIFO) expects the Austrian economy to face many challenges. / Picture: © Wikimedia Commons / Herbert Ortner, Vienna, Austria / CC BY-SA (http://creativecommons.org/licenses/by-sa/3.0/)
In 2023, inflation in Austria stood at 7.8%, but according to WIFO, it will slow to 3.4% by 2024 and 2.5% by 2025. Nevertheless, Austria is expected to remain in the top group of countries with the highest inflation rates in the eurozone. The main reasons for this are the significantly higher wage increases compared to the rest of the eurozone as well as extensive price indexation for rents, mobile phone tariffs, and insurance.
Josef Baumgartner, economist at WIFO, explains that the passing on of wage increases to service prices in particular will have the greatest impact on inflation in 2024 and 2025. Services that are particularly wage-intensive, such as in the hospitality and healthcare sectors, will make a significant contribution to inflation remaining high.
Economic stagnation and slow recovery
Following an economic decline of 0.8% in 2023, the Austrian economy is not expected to recover significantly in 2024. According to the current WIFO Economic Outlook, economic conditions will only improve slightly from 2025 onwards if global exports pick up, thereby boosting domestic demand.
Christian Glocker, one of the authors of the WIFO Economic Outlook, describes the economic situation in 2024 as "divided": While market-oriented services are expanding, the manufacturing sector remains in recession. This development is due to weak domestic and export demand, which is weighing on the manufacturing and construction sectors. This is leading to a subdued willingness to invest and a weak economy overall.
The leading indicators also do not point to an imminent economic recovery; on the contrary, they have recently deteriorated again. The industrial sector is particularly affected, with a declining order situation and demand, which is further dampening the willingness to invest.
Labor market and employment
Despite the economic stagnation, the labor market in Austria is robust. Following a 1.2% increase in employment in 2023, further employment growth is expected in 2024 and 2025, mainly driven by the service sector. However, the unemployment rate will continue to rise due to the strong growth in the workforce. An unemployment rate of 6.9% is forecast for 2024, which is expected to fall slightly to 6.7% in 2025.
Skeptical economic assessments
The economic assessments of Austrian companies deteriorated slightly in June 2024. The WIFO Business Survey shows that the economic climate index fell by 2.5 points to -6.7 points. Assessments are particularly negative in the manufacturing and retail sectors, while the service sector is still rated slightly positively.
Companies' expectations remain skeptical. Despite slight improvements in some sectors, the general mood remains subdued, indicating continuing uncertainty and a weak economic outlook. Overall economic expectations have changed only slightly, but remain in negative territory and thus signal a skeptical assessment of future economic development.
Outlook and challenges
In the coming years, Austria will face the challenge of reducing inflation while at the same time driving economic recovery. Despite the expected slowdown in inflation and a moderate economic recovery from 2025, considerable uncertainties remain. The global economic situation, the development of energy prices, and domestic demand will be decisive factors in determining Austria's economic future.
The government and economic policy must therefore take measures to strengthen competitiveness, promote investment, and continue to combat inflation. At the same time, it is important to stabilize the labor market and promote employment to cushion the social impact of economic stagnation.