About Austria Up-to-date
The information provided by Bank Austria in our publication “Austria Up-to-date” includes current economic forecasts and the most recent data for key indicators, in some cases in the form of charts. The key indicators are supplemented by regular comments, and their impact on the forecast is analysed in this report.
Sentiment improvement strengthens hope for recovery
- Moderate economic improvement in the second half of the year
Due to the energy price shock and supply chain problems during the Iran war, the Austrian economy only stagnated in the second quarter. Notwithstanding the recent escalation, a gradual easing of the geopolitical crisis is expected in the coming months. The sentiment indicators swung significantly upwards in July. We continue to expect economic growth of 0.8 percent in 2026 and a slight improvement to 1.2 percent in 2027. - Unemployment rate remained at 7.6 in July
Due to the unfavorable influence of the consequences of the Iran war on the economy, there has not been the originally expected easing of the labor market in the course of the year so far, but on the contrary even a slight increase in the unemployment rate. After an average of 7.5 percent in 2026, we expect a downward trend to begin in 2027, supported by demographic effects, which should bring a decline in the unemployment rate to at least 7.4 percent. - Double budget for 2027/28 adopted
On 10 July, parliament adopted the budget estimates for 2027 and 2028. By 2028, the deficit is to be reduced to 3 percent of GDP. There is no room for manoeuvre in the event of a weaker economy, so we have raised our forecast for the budget deficit in 2027 to 3.8 percent, after a deficit of 4 percent in 2026.
On the other hand, the budget data so far indicate that the estimate for 2026 can be largely adhered to according to plan. - VAT cut reduces inflation to 2.7 percent year-on-year in July
According to preliminary estimates, the inflation rate fell to 2.7 percent in July, falling below 3 percent for the first time since the outbreak of the Iran conflict. However, the current decline was largely influenced by the VAT reduction on basic foodstuffs. In the first seven months of the year, the average inflation rate was 2.9 percent. However, inflationary pressures will remain elevated in the coming months. We continue to expect an inflation rate of 3.2 percent on average for Austria in 2026. - Further tightening of monetary policy expected in September
The ongoing tensions in the Gulf region increase the risk of energy prices rising again and thus a renewed acceleration of inflation. For the ECB, this means additional uncertainty for its monetary policy. In any case, we believe that this increases the likelihood of a further increase in key interest rates. We expect the ECB to raise the key interest rate by 25 basis points in September.
As of August 2026.
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