After stabilization, on the road to recovery
- Economic hopes continue to rest on domestic demand
The strength of the recovery of the domestic economy in 2026 will depend decisively on the development of domestic demand. On the one hand, the aftermath of the key interest rate cuts should have a positive effect on investment activity. On the other hand, the fall in inflation should contribute to a gradual decline in the propensity to save and give a little more impetus to private consumption. Foreign trade is expected to continue to weigh on the economy in Austria at least in 2026. However, the negative effect should gradually decrease. Economic growth is expected to increase to 1.0 percent in 2026 and further to 1.5 percent in 2027. - Demographic effects relieve the labor market
The seasonally adjusted unemployment rate stagnated at 7.5 percent in November. The peak of the current cycle is likely to have been reached. After an average of 7.5 percent in 2025, the unemployment rate should fall to 7.4 percent in 2026 and further to 7.3 percent in 2027, as the increase in the labor supply will be very limited. - Budget deficit will continue to exceed 4 percent of GDP in 2026
For 2025, we expect a marginal decline in the budget deficit to 4.5 percent of GDP, after 4.7 percent in 2024. The consolidation measures already in place will have a stronger effect in 2026, so that the budget deficit is expected to decline further to 4.2 percent of GDP. Only in 2027, supported by the improved economic development, do we expect the outflow in the general government budget to be reduced to less than 4 percent of GDP. - Sharp decline in inflation at the beginning of 2026
At 4.1 percent in November, inflation was now about twice as high as in the previous year for the fourth month in a row. We do not expect a noticeable decline in inflation until the beginning of 2026 due to the elimination of the effect of the expiry of the electricity price brake from the calculation. After an average of 3.5 percent in 2025, inflation should fall to 2.4 percent in 2026 and further to 2.0 percent in 2027. - End of the interest rate cut cycle in the euro area?
We expect the ECB to keep the deposit rate at 2 percent for an extended period of time. A progressive strengthening of economic momentum could trigger a 25 basis point rate hike towards the end of 2027.
As of December 2025.
About Austria Up-to-date
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