Inflation Outlook for Austria Shows Significant Improvement
The Austrian National Bank's (OeNB) latest inflation forecast gives cause for cautious optimism for the Austrian economy. Inflation has decreased and economic growth has also returned since the start of the year, albeit weakly.
A new inflation forecast by the Austrian National Bank (OeNB) sees inflation falling to 3.6 percent this year - a halving compared to 2023. / Picture: © Wikimedia Commons / C.Stadler/Bwag / CC BY-SA 4.0 (https://creativecommons.org/licenses/by-sa/4.0)
The inflation rate is expected to fall to 3.6 percent in 2024, a significant improvement from the previous year when a rate of over 11 percent was recorded. This positive trend is expected to continue in the coming years, with a forecast of 2.7 percent for 2025 and 2.3 percent for 2026.
A significant factor in this decline is the government's fiscal measures, such as the electricity price brake and the grid cost subsidy, which have had a dampening effect on inflation, particularly in the energy sector. In addition, the rise in prices for food and non-energy industrial goods has slowed.
In addition to the improved inflation situation, the economy returned to a moderate growth path at the start of 2024. After a period of recession in 2023, gross domestic product (GDP) is expected to grow by 0.5% this year, followed by a further acceleration to 1.8% in 2025. This development will also be supported by the housing package recently adopted by the government, which will provide a significant economic stimulus.
Interestingly, the core inflation rate, which excludes energy and food prices, will remain higher than general HICP inflation over the entire forecast period. This indicates that the service sector will continue to experience above-average inflation, boosted by strong demand for tourism and rising wage pressure.
Despite these positive signals, a complete alignment of Austria's inflation rate with the eurozone remains unlikely in the medium term. The inflation differential is currently around 1.5 percentage points and will fall to 0.6 percentage points by 2026. Nevertheless, the gap with the eurozone is expected to normalize to a level similar to that of 2011 to 2021.
Overall, the OeNB's March interim forecast gives hope that the Austrian economy will increasingly stabilize. The decline in inflation rates, combined with a rebound in economic growth, promises a gradual recovery from the economic turbulence of recent years.