Still weak economy, but high inflation
- Small GDP growth in 2025 is becoming more likely
We continue to expect an increase of 0.1 percent in 2025 as a whole, which is now better hedged on the downside. In the first half of the year, GDP fell short of the previous year's figure by 0.3 percent. The continuing improvement in economic sentiment suggests that the domestic economy will have a slight tailwind in the coming months. Domestic demand will continue to be the supportive force, while the export industry, which is expected to be weighed down by US tariff measures, will dampen economic development. Under the more favorable conditions for domestic demand, we continue to expect economic growth of 1.1 percent for 2026. - Unemployment rate likely to fall slightly in 2026
In August, the seasonally adjusted unemployment rate was 7.5 percent. Unemployment in Austria will be burdened by the development of the domestic export-oriented industry. We assume an average unemployment rate of 7.5 percent for 2025. However, the deterioration of the situation on the domestic labor market is slowing down and, supported by demographic effects, we expect the unemployment rate to fall slightly to 7.4 per cent in 2026 despite only moderate economic growth. - Budget deficit will continue to exceed 4 percent of GDP in 2025
According to calculations by Statistics Austria, the overall budget deficit in 2024 was 4.7 percent of GDP. In order to reduce the budget deficit in 2025, an austerity package of 6.4 billion euros or 6.4 billion euros was introduced. 1.3 percent of GDP for 2025. However, the scope of this package of measures will only allow for a small reduction in view of the weak economy and the poor guidance from 2024. According to the official budget estimate, we now expect a budget deficit of 4.5 percent of GDP for 2025. - Slight decline in inflation in the 2nd half of the year
Inflation averaged 3.3 percent in the first eight months of 2025. In addition to the abolition of the electricity price brake at the beginning of the year, the high dynamics of service prices and food prices caused the increase. For the coming months, we expect inflation to slow gradually. Due to the surprisingly strong increase so far and an expected very modest decline in the coming months, partly due to fee increases, we have adjusted our inflation forecast for 2025 to 3.5 percent. For 2026, we expect only a decline to 2.4 percent. - End of the interest rate cut cycle in the euro area?
Inflation in the euro area is hovering around the target of 2 percent, wage growth is weakening and the economy has so far weathered the impact of US tariffs even better than expected. We therefore expect the ECB not to cut rates further for the time being. The deposit rate should remain at 2 percent until the end of 2026.
As of September 2025.
About Austria Up-to-date
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