UniCredit Bank Austria economic forecast 2026/27:
Global economy proves resilient and adaptable in the face of Trump 2.0
- Global economic momentum expected to increase by 3 per cent in 2026/27
- Solid growth in the US thanks to fiscal and monetary policy support and high AI investments
- Investment and consumption restraint weighs on momentum in the eurozone, but support from fiscal policy will enable GDP growth of 1.4 per cent in 2027 after 1.0 per cent in 2026
- Inflation in the eurozone expected to remain slightly below the target of 2 per cent in 2026 and 2027
- The ECB remains on hold, but further easing of monetary policy in the US through key interest rate cuts to 3.25 to 3.50 per cent expected from the second half of 2026
- The selling pressure on the US dollar is likely to continue at a slower pace: We expect the US dollar to weaken against the euro to 1.18 at the end of 2026 and 1.20 at the end of 2027
- Domestic demand should ensure GDP growth of 1.0 per cent in Austria in 2026/27 and 1.5 per cent in 2027, despite fiscal constraints Burden from foreign trade expected to decrease
- Unemployment rate expected to fall to 7.4 per cent in 2026 and 7.3 per cent in 2027, supported by demographic effects
- Slow easing of inflation to an average of 2.4 per cent in 2026 and 2.0 per cent in 2027
„The global economy will continue to show its ability to adapt to the changes in economic policy conditions brought about by Trump 2.0, but the risks are clearly on the downside. Prolonged uncertainty, more protectionism and labour supply shocks will lead to negative effects on demand. However, after slowing to 2.9 per cent next year, global growth will increase again to 3.2 per cent in 2027,” says UniCredit Bank Austria Chief Economist Stefan Bruckbauer in his introduction to UniCredit Bank Austria's current economic overview, adding: “The negative effects on demand will gradually weaken as a result of the shift in global trade towards services, accelerated by further digitalisation and the use of artificial intelligence. The promotion of the production of strategic goods such as semiconductors in order to reduce dependence on China and the increase in defence efforts will also have an offsetting effect. However, this is associated with the risk of greater fiscal vulnerability and corrections on the financial markets."
Fiscal support, high investment in AI, more favourable financing conditions due to monetary easing and a certain easing of political uncertainties, or rather the acclimatisation to them, will enable solid economic growth of 2.1 per cent in the US next year and 2.0 per cent in 2027. According to the economists at UniCredit Bank Austria, the main risk to the outlook remains inflation. The passing on of tariffs to consumers will intensify in the coming months as the inventories stockpiled in the run-up to the introduction of tariffs are emptied, meaning that core inflation will peak at 3.5 per cent in the coming months. However, the upward pressure will ease from the second half of 2026, although inflation in the US is likely to remain above the target value until 2027.
The eurozone economy has so far weathered the tariff storm better than expected, but investment activity is subdued and consumption is dampened by a high propensity to save. A more expansive fiscal policy should initiate a turnaround. Next Generation EU (NGEU) investment will be in full swing before the programme expires at the end of 2026, but the boost from Germany's infrastructure and defence programmes will only be gradual due to implementation problems and bottlenecks, and the pan-European rearmament plan is also likely to provide little impetus.
“After a slow start, we expect a gradual acceleration of the European economy over the course of 2026, supported by fiscal policy initiatives, a reduction in tariff-related uncertainty and the subsequent effect of ECB interest rate cuts. After an increase in GDP of 1.0 per cent in 2026, we expect slightly higher economic growth of 1.4 per cent in 2027,” says Bruckbauer.
Inflation in the eurozone remains low, especially as wage growth continues to slow. Inflation is even expected to be below 2 per cent in the next two years, with a low point at the end or beginning of 2027. The moderate inflation trend will be supported by low energy prices. The continuing oversupply on the global oil market will keep the price of crude oil in a range of USD 60 to 65 per barrel, with the risks even tending to be on the downside. There are also signs of an oversupply of gas due to an increasing supply of LNG, which should reduce the average price to EUR 30 to 35 per megawatt hour in 2026, albeit with high volatility depending on winter temperatures.
ECB remains on hold, but two Fed rate cuts expected
“We do not expect the European Central Bank to make any interest rate cuts for the time being, which means that the deposit rate will be held at 2 per cent for an extended period. In view of the still weak economy and inflation slightly below the target value, there is a risk that the ECB could make a further, final rate cut in the first half of 2026. In any case, the improvement in the economy should prompt the ECB to raise interest rates by 25 basis points at the end of 2027,” says Bruckbauer.
In contrast to the ECB, the US Federal Reserve will lower the key interest rate, probably in two steps at the beginning of the second half of the year and at the end of 2026 to a range of 3.25 to 3.50 per cent, and will not take any further steps in 2027. The high core inflation and solid growth argue against earlier or stronger interest rate cuts. Although political influence could increase with the end of Jerome Powell's term as Fed Chairman, the independence of the central bank should not be called into question.
“Although the interest rate differential would favour a strengthening of the US dollar against the euro, selling pressure on the US dollar is likely to continue in 2026 given the political uncertainties. However, a weakening of the US dollar by 12 per cent as in 2025 so far seems unlikely. We expect an exchange rate of 1.18 at the end of 2026 and 1.20 at the end of 2027. There does not seem to be any room for a rise above the 1.20 mark for one euro,” says Bruckbauer.
Gradual improvement in the Austrian economy
“The Austrian economy has found its way out of recession in 2025 and is slowly starting to recover after a stabilisation phase,” says UniCredit Bank Austria economist Walter Pudschedl, adding: “Sentiment in the domestic economy has improved in all economic sectors over the course of 2025. The UniCredit Bank Austria economic indicator fell marginally to minus 1.4 points in November, but this still reflects a pessimistic mood and emphasises the still fragile economic trend.”
In November, sentiment in industry improved in a stable export environment. In contrast, there was a slight decline in the construction and service sectors, although the economic situation in the service sector is still considered to be more favourable than in the eurozone.
Economic hopes continue to rest on domestic demand
Domestic demand has countered the negative impact of US tariff policy on foreign trade in 2025, enabling a slight increase in GDP of an expected 0.3 per cent after two years of decline. However, the development of domestic demand fell short of expectations. As a result of economic and geopolitical uncertainties, a high level of investment restraint persisted despite lower interest rates. In addition, consumer momentum remained muted as a result of the high propensity to save, which is primarily due to stubborn inflation.
“The strength of the domestic economic recovery in 2026 will depend crucially on the development of domestic demand. On the one hand, the after-effects of the key interest rate cuts should have a positive impact on investment activity, especially as there appear to be signs of a slight upturn in building construction activity. On the other hand, the decline in inflation should contribute to a slow decline in the propensity to save and give private consumption a little more momentum,” says Pudschedl optimistically, adding: “In view of the consequences of the US economic policy realignment for global trade and the structural problems in the heavily export-oriented Austrian industrial sector, foreign trade is likely to continue to weigh on the Austrian economy at least in 2026. However, the negative effect should gradually diminish, as domestic companies are increasingly able to adapt to the new framework conditions.”
The economists at UniCredit Bank Austria expect the fragile economic improvement to continue and a moderate recovery to set in. Economic growth should increase to 1.0 per cent in 2026 and further to 1.5 per cent in 2027.
Demographic effects relieve pressure on the Austrian labour market
Despite the only moderate pace of recovery in the Austrian economy, the unemployment rate is expected to fall over the next two years. The tension on the labour market had already eased significantly by the end of 2026. Seasonally adjusted employment stabilised and the number of jobseekers rose only marginally. The average unemployment rate is expected to fall to 7.4 per cent in 2026, down from 7.5 per cent in 2025. The unemployment rate is expected to fall further to at least 7.3 per cent in 2027, supported by a subdued development in labour supply, partly due to the retirement of baby boomers from the labour market.
Calming inflation, but no all-clear
Inflation will fall significantly at the beginning of 2026 - favoured by the elimination of the increasing effect of the expiry of the electricity price brake at the beginning of 2025 from the calculation. However, second-round effects in the services sector will continue to cause inflation to be significantly higher than in the eurozone. “We expect inflation to fall to 2.4 per cent in 2026, compared to an annual average of 3.5 per cent in 2025. Provided there are no sharp spikes in commodity prices, inflation should continue to slow in 2027, allowing for an inflation rate of just 2.0 per cent. This means that inflation in Austria is likely to reach the ECB's target in 2027 for the first time in seven years,” says Pudschedl.
Enquiries:
UniCredit Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, Phone: +43 (0) 50505-41957;
E-mail: walter.pudschedl@unicreditgroup.at