UniCredit Bank Austria Business Indicator
Increased uncertainties weigh on outlook
- UniCredit Bank Austria Business Indicator fell to minus 2.9 points in April
- Falling consumer confidence dampened sentiment in the services sector in April, while pessimism in the construction and industrial sectors eased somewhat despite US tariff announcements
- Despite slight growth in the first quarter: GDP expected to fall by 0.2 per cent for the third consecutive year in 2025. GDP not expected to increase by 1.1 per cent until 2026
- Unemployment rate expected to rise to 7.5 per cent in 2025, no improvement in sight for 2026
- Energy price trend should support further decline in inflation
- Further ECB key interest rate cuts of 25 basis points each expected for June and September
Economic sentiment in Austria deteriorated again at the start of the second quarter. “Following the slight improvement trend since the beginning of the year, the UniCredit Bank Austria Business Indicator fell to minus 2.9 points in April,” says UniCredit Bank Austria Chief Economist Stefan Bruckbauer, adding: “The Austrian economy is likely to have grown slightly in the first quarter. This marks the end of the phase of eight negative quarters in a row. However, the current economic and sentiment indicators do not favour a continuation of the upward trend for the time being. The positive GDP result in the first quarter was not a liberating blow. In view of the existing challenges, only the coming months will show whether the recession in the Austrian economy has come to an end or just taken a break.”
Sentiment in the service sector drags down Business Indicator
The deterioration in economic sentiment in Austria at the start of the second quarter was characterised by the slump in consumer confidence, which was reflected in sentiment in the services sector. While the increase in purchasing power due to real wage growth continues to be barely noticed, the deterioration in the situation on the labour market, the uncertainty caused by the US government's tariff announcements and probably also the forthcoming budget restructuring measures in Austria have had a negative impact on consumer sentiment. Business expectations in many service sectors, particularly in finance, advertising and transport and storage services, were adversely affected as a result.
“While sentiment in the services sector deteriorated significantly at the start of the second quarter, the current assessment in the construction and industrial sectors improved slightly. The rise in sentiment in domestic industry is surprising given the tariff announcements by the US government and the continuing deterioration in the export environment. The indicator for international industrial sentiment, which is weighted with Austrian trade shares, continued to fall in April. This means that the improvement in sentiment among domestic industrial companies could be short-lived, especially as business expectations were already assessed less favourably again in April,” says UniCredit Bank Austria economist Walter Pudschedl.
In contrast, the improvement in sentiment in the domestic construction industry appears to be more sustainable. The order trend has improved in building construction and, above all, civil engineering, fuelling hopes of at least a moderate growth phase.
Increase in GDP not expected until 2026
Although the recession in Austria at least came to a halt in the first quarter of 2025, a sustained improvement in the economy in the coming months is not in sight. The current deterioration in the UniCredit Bank Austria Business Indicator even makes a renewed weakening of economic momentum after the upward trend at the start of the year likely, especially as the announced US tariffs would place a heavy burden on the domestic economy.
“We are optimistic that the economic uncertainties will subside again in the coming months. Based on the increased purchasing power of consumers and low interest rates, we assume that domestic demand will continue to stabilise the economy and that the Austrian economy will not slide back into recession,” says Pudschedl, adding: “However, the economic situation remains very challenging, especially as there is no budgetary leeway for fiscal policy support measures. Despite low growth rates during the year, economic output is expected to fall for the third year in a row in 2025 as a whole, but at -0.2 per cent, it will be significantly lower than in previous years.”
For 2026, the economists at UniCredit Bank Austria still expect moderate economic growth of 1.1 per cent for Austria. On the one hand, private consumption should continue to gain strength due to the normalisation of inflation and the decline in the high propensity to save. On the other hand, investment activity should be able to increase due to low interest rates and the dispersion effects of the expansive fiscal policy in Germany. Furthermore, the export industry should have largely overcome the additional burdens caused by US tariff policy and at least not dampen economic momentum.
Challenges on the labour market continue to increase
In April, the seasonally adjusted unemployment rate rose to 7.5 per cent, its highest level since summer 2021. The upward trend will continue in view of the weak economy and the difficult conditions, especially for the export industry. The number of jobseekers in 2025 will be around 8 per cent higher than in the previous year, while employment is expected to stagnate. “We expect an average unemployment rate of 7.5 per cent in 2025. The situation on the labour market is not expected to stabilise until 2026, meaning that the unemployment rate is unlikely to rise any further,” says Pudschedl.
Inflation stubborn, but trending
Inflation rose to an average of 3.1 per cent in the first four months of the year, fuelled by strong momentum in service prices. Driven by energy prices, a downward trend in inflation should prevail again in the coming months. The significant fall in crude oil prices to below EUR 60 per barrel, around 25 per cent below the previous year's level, was supported by the weakening of the US dollar and will dampen inflation in Austria in the coming months. However, the decline in inflation will be slowed by the stubborn rise in service prices as a result of high labour cost dynamics and good demand in some sectors, such as the accommodation industry. In addition, the dampening effect of falling goods price inflation to date has come to an end.
“We expect inflation to fall to an average of 2.5 per cent in 2025 as a whole. While we do not expect any noticeable impact on goods price inflation from possible tariff measures on US imports, a stronger focus by China on the European sales market could even trigger price-dampening effects. However, the risk of a slower decline in inflation has increased in recent weeks due to stubborn service price inflation,” says Pudschedl. For 2026, the economists at UniCredit Bank Austria continue to expect an average inflation rate of 1.9 per cent.
ECB expected to cut key interest rates slightly below neutral level
At an average of 2.3 per cent in the first four months, inflation in the eurozone is well below that in Austria and is also showing a stable downward trend. As inflation in the eurozone is thus approaching the target value, the ECB lowered its key interest rates again by 25 basis points in April.
“Due to the downside risks to the economy from US tariff policy, the easing of monetary policy in the eurozone is likely to continue. We expect a further cut of 25 basis points at the next ECB meeting in June. With a final cut in September, the current cycle of interest rate cuts should be complete and the deposit rate should have reached its low of 1.75 per cent. We expect key interest rates to move sideways in 2026. The ECB will adopt a wait-and-see approach due to possible growth and inflation stimuli from higher infrastructure and defence spending in the EU,” concludes Bruckbauer.
Enquiries:
UniCredit Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, Tel.: +43 (0) 5 05 05-41957;
E-mail: walter.pudschedl@unicreditgroup.at