UniCredit Bank Austria sector overview
Economic recovery is taking hold in more and more sectors
- Sentiment in the Austrian economy continued to brighten at the start of the year, signalling a further strengthening of the economic recovery
- The stabilisation of the industrial economy is gaining momentum and, despite difficult conditions, a slight increase in production of 1.5% is expected for 2026
- The situation in construction remains challenging: stabilisation in building construction will be accompanied by a slowdown in civil engineering
- The service sector and trade will benefit from the significant decline in inflation and slight real income growth
The Austrian economy embarked on a moderate recovery in the second half of 2025, supported by domestic demand. This was offset by challenges in foreign trade, burdened by rising protectionism and weakened competitiveness. The challenges in the export business had an unfavourable impact on the development of value added in industry at the end of 2025. The construction industry suffered significant losses, while consumer-related service sectors in particular, such as trade and tourism, showed a positive trend.
“After two consecutive years of GDP declines, the service sector in particular brought an end to the recession in 2025 and a slight increase in Austrian economic output of 0.5 per cent. Industry was also able to make a positive contribution to the result for the year as a whole, despite very different sector trends, while construction output once again fell short of the previous year”, says UniCredit Bank Austria Chief Economist Stefan Bruckbauer.
The majority of domestic companies are starting 2026 with improved output and demand expectations. However, economic sentiment in the manufacturing sector remains below the long-term average. In the service sector, however, optimism has gained the upper hand. “The current survey results indicate that the domestic economy will continue to recover in the coming months, although the pace is likely to remain modest for the time being. The sector climate has generally improved and is already sunny or brightening in many sectors. The services sector and trade in particular are supporting the recovery, boosted by significantly lower inflation and a looser monetary policy, which is also helping to further stabilize the industrial sector, while the situation in construction remains gloomy”, says UniCredit Bank Austria economist Walter Pudschedl, adding: “The subdued economic development will not change in the first few months of 2026 at least, but the recovery is gaining stability and should gain momentum as the year progresses. We are assuming economic growth of 1.0 per cent for 2026.”
To determine the industry climate indicator, the development of production and turnover up to the 4th quarter of 2025 is compared with the results of the business survey up to January 2026.
Stabilisation of the industrial economy gains breadth
Despite difficult conditions, real production in industry increased by 3.1 per cent in 2025 (manufacturing). Towards the end of the year, however, the industrial economy slowed down, burdened by the continuing global weakness in demand, also as a result of restrained investment activity. Despite the difficult environment, some sectors were able to achieve significant production growth in 2025. The pharmaceutical industry, chemical production, metal goods production and wood processing in particular delivered above-average results. With a final spurt, motor vehicle production was also able to increase slightly in 2025. In contrast, there were clear declines in production in other vehicle construction and in the paper industry. Austria's flagship industry, mechanical engineering, also recorded significant losses for the second year in a row.
“Sentiment in the sector continued to improve at the start of the year, fuelled by a more stable export environment. Although companies describe the order situation as very weak, production expectations have increased. Pessimism in industry is decreasing and the economic situation is already improving in some sectors”, says Pudschedl, adding: “Austrian industry should be able to follow a more stable recovery path in the coming months. The pace will remain moderate, but will reach more sectors. Due to the risks in exports, cyclically sensitive sectors such as food production are at an advantage, while the global challenges are likely to weigh on the steel industry, car manufacturing and the pharmaceutical industry, among others, in the coming months.”
The crisis in the Austrian construction industry continues
After a cautious stabilisation, the decline in construction output accelerated again towards the end of 2025, resulting in a significant year-on-year decline of 1.9 per cent in 2025. The trend was characterised by very different developments in building construction and civil engineering. While production output in building construction fell by an average of 11.5 per cent, with the pace increasing again towards the end of the year, it rose by 14 per cent in real terms in civil engineering. Specialised construction activities declined by 2.0 per cent in 2025.
Around the turn of the year, production expectations generally deteriorated more sharply again after the order situation in all sub-sectors deteriorated again. While the situation in civil engineering is likely to become more challenging due to tight public budgets, the increased momentum in building permits suggests an improvement in the economy, at least in parts of building construction.
The seasonally adjusted unemployment rate in construction rose to almost 10 per cent at the start of 2026. Nevertheless, over 20 per cent of contractors cite the lack of labour as an obstacle to production. However, the lack of orders remains the biggest obstacle with around 25 per cent of responses. In the second half of 2025, the order situation and production in construction stabilised at a low level. Around the turn of the year, however, production expectations generally deteriorated more sharply again after the order situation in all sub-sectors deteriorated again. Accordingly, employment and price expectations in the construction sector also fell.
“The slump in construction, caused by the weakness in building construction, is continuing for the time being. While the situation in civil engineering will become more challenging in the coming months due to limited public funding, the increased momentum in building permits and financing means that an economic improvement can be expected, at least in parts of building construction, especially in residential construction. However, the growth prospects for 2026 remain limited”, says Pudschedl.
Service sector should be able to benefit from lower inflation
The service economy stabilised at a moderate level over the course of 2025 and developed solidly despite the high inflation rates, which led to a loss of purchasing power in the second half of the year. However, individual results remained very mixed. Value added in the areas of trade, catering and accommodation, finance and other consumer-related services increased. Public administration also made a positive contribution. In contrast, value added in production-related services, such as most business services, scientific and technical services and transport, declined.
The industry climate continued to brighten at the start of 2026 and is rated better by entrepreneurs than in the eurozone. Demand expectations have been above the long-term average for several months. “The sharp fall in inflation at the start of the year and the stabilisation of the situation on the labour market should lead to a reduction in the high propensity to save and offer improved conditions for the development of the service industries in 2026. The service sector will therefore remain a main driver of higher economic growth in the current year 2026”, says Pudschedl.
Sunny sector climate in retail
In the retail sector (excluding petrol stations and motor vehicles), sales growth levelled off in the second half of 2025, weighed down by the rise in inflation. Buoyed by solid Christmas sales, nominal sales growth of 2.9 per cent was achieved, although this only corresponds to a year-on-year increase of 0.7% in real terms and was therefore slightly below the 2024 result of 0.9 per cent. By contrast, there was a clear upward trend in the motor vehicle trade (including garages) in the second half of 2025. Nominal sales rose by over 6 per cent overall in 2025, or over 3 per cent in real terms, with the result being driven more strongly by the particularly positive development in the motor vehicle trade. Almost 285,000 new cars were registered in 2025, an increase of 12.3 per cent compared to 2024.
“After a slowdown at the end of the year, business expectations in the retail sector have improved again at the start of 2026, and the mood in the automotive trade has also brightened. There is now slight optimism in both sectors”, says Pudschedl, adding: “In the coming months, we expect moderate growth in the retail sector, which should gain some momentum over the course of the year thanks to a decline in inflation and slight increases in real wages. We even expect above-average business development in the automotive trade. The strong momentum in the new car business, which got off to an excellent start to the year in January 2026 with a year-on-year increase of 12.1 per cent, and a stable used car market support the positive outlook, albeit with lower price expectations.”
Further information can be found at: https://www.bankaustria.at/wirtschaft-oesterreich-branchenueberblick.jsp
Enquiries:
UniCredit Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, Phone: +43 (0) 5 05 05-41957;
E-mail: walter.pudschedl@unicreditgroup.at