UniCredit Bank Austria: Austrian Economy Remains in the Downturn - Hope for Recovery Only in 2025
The economic situation in Austria remains tense and a sustainable recovery does not appear to be in sight until 2025. The latest reports from UniCredit Bank Austria paint a gloomy picture for 2024. Despite some positive signs, particularly in the service sector, the economy is in a prolonged slump. Industry and the construction sector in particular continue to be under great pressure, which is weighing heavily on the overall situation in Austria.
Economists at Bank Austria, which is a member of the Italian UniCredit Group, have analyzed the Austrian economy. / Picture: © Wikimedia Commons /Boubloub/ CC0 1.0 Universal (CC0 1.0) Public Domain Dedication
UniCredit Bank Austria's economic indicator rose to minus 2.9 points in February 2024, the best value in nine months but still well below the long-term average. This rise is interpreted by economists as a sign of a very slow improvement in economic conditions. “The improvement in the economic situation is continuing at a very moderate pace,” explains Stefan Bruckbauer, Chief Economist at UniCredit Bank Austria. “Despite a slight upward trend, the current indicator continues to signal a tense economic situation.”
The situation in industry and construction remains particularly problematic. While the service sector is making slight progress due to improved consumer sentiment due to rising wages and falling inflation, industry and construction are still under great pressure. The order situation remains tense, particularly in construction-related industries such as metal processing, which are heavily affected by the difficult situation in construction.
Subdued expectations for 2024
The economists at Bank Austria are forecasting only slight economic growth of 0.3% for 2024. This modest growth is primarily due to weak demand and restrained investment in many sectors. “The current economic and sentiment indicators continue to suggest that the economy will largely move sideways in the coming months,” says Walter Pudschedl, economist at UniCredit Bank Austria.
Of particular concern is the state of Austrian industry, which continues to perform poorly in an international comparison. There are also no signs of an imminent improvement in the construction industry. The lack of demand for new buildings and the reluctance to invest are dampening the prospects of a rapid recovery.
Hope for improvement from 2025
Despite the gloomy outlook for 2024, there is hope for a noticeable improvement from 2025. The economists at UniCredit Bank Austria believe that the domestic economy could benefit from a revival in the global economy in the coming year. “With some tailwind from the less restrictive monetary policy, a stronger increase in GDP of up to 1.5 percent should be possible in 2025,” explains Pudschedl. This positive development will be driven primarily by an expected easing of monetary policy and the resulting boost to private consumption.
The development of inflation will play a central role in this recovery. The inflation rate is expected to fall to an average of 3.3% in 2024, down from 7.8% in the previous year. The lower inflation rates should not only strengthen consumers' purchasing power but also increase the scope for investment. In 2025, inflation could fall further to 2.3%, which would provide additional impetus for economic development.
The labor market under pressure
The Austrian labor market is also facing major challenges. The unemployment rate rose to 7.1% in 2024, reaching its highest level since September 2021. The annual average unemployment rate is expected to be 7.0%. Employment fell in industry and construction in particular, further exacerbating the difficult situation in these sectors.
Bank Austria's economists expect the upward trend in unemployment to continue into the fall of 2024. The situation in construction is particularly problematic, where the lack of new orders and the ongoing reluctance to invest are likely to lead to further job losses. The situation in the services sector is slightly better, although pressure could also increase here over the year.
On a positive note, however, the labor market could stabilize in the second half of 2024. “Despite the only moderate pace of recovery, the upward trend in unemployment is likely to reverse again towards the end of 2024,” says Pudschedl. A slight improvement is expected for 2025, with an average unemployment rate of 6.5%.
Cautious optimism despite positive momentum
Overall, the outlook for the Austrian economy remains subdued. The combination of weak global demand, structural problems in the industrial and construction sectors and only slowly falling inflation poses major challenges for the domestic economy. Although the economists at UniCredit Bank Austria see light at the end of the tunnel, they warn against excessive optimism. “The prospect of an imminent recovery of the domestic economy has been pushed back significantly,” says Bruckbauer.
Nevertheless, there is reason for hope. If the global economy gains momentum and monetary policy is loosened further, the general conditions in Austria could also improve. The expected growth in real wages and the rising purchasing power of consumers could boost private consumption and thus stimulate the economy.
In summary, the Austrian economy faces another difficult year in 2024 but can hope for a noticeable recovery from 2025 onwards. The challenges remain great, but with a more stable global economy and a looser monetary policy, the conditions for a sustainable economic recovery could be created. Until then, however, patience is still required.