After the recession – Economic outlook for 2024 and beyond

Austria Up-to-date
Economic situation remains very tense at the start of the year

graphic GDP, inflation, unemployment rate

  • Recovery is still some time away
    The situation in the domestic economy remains tense, but there are at least a few glimmers of hope, with economic sentiment pointing slightly upwards in most economic sectors since the turn of the year. Following the decline in economic output by 0.8% in 2023, we expect a moderate recovery from the second half of 2024 with a slight increase in GDP of 0.3%, assuming a further decline in inflation. The turnaround in the inventory cycle and rising real wages as a result of lower inflation should trigger a moderate recovery via consumption in the course of 2024. We expect GDP to increase by 1.5% in 2025.
  • Unemployment rises in 2024, slight easing in 2025After the labor market has proven to be very resilient to the economic cycle so far this year, the consequences of the ongoing economic weakness can now be seen in the rising number of jobseekers in many sectors. After 6.4% on average in 2024, the seasonally adjusted unemployment rate in January and February was 6.7%. The situation on the labor market is likely to deteriorate for the time being, mainly due to the weakness in industry and construction, and only ease somewhat towards the end of the year. We expect an average unemployment rate of 6.7% in 2024. Thanks to stronger GDP growth, it should fall to 6.5% by 2025. 
  • Inflation continues to fall, but more slowly than in the euro areaInflation has fallen to 4.3% in February 2024. Inflation will again be significantly higher than in the euro area in 2024. However, the decline in inflation will continue, albeit relatively slowly. Despite a noticeable increase in many service prices as a result of a sharp rise in material and personnel costs, we expect inflation to slow to 3.6% in 2024 and 2.3% in 2025. 
  • Interest rate cuts expected from mid-2024The ECB will start a cycle of interest rate cuts in 2024. However, based on the statements made so far by the members of the ECB Governing Council, the first easing of monetary policy is not expected until June 2024 and a rather cautious approach to the neutral interest rate level. Key interest rates are likely to be cut by 75 basis points by the end of 2024 and by a further 100 basis points in 2025, meaning that the repo rate will gradually fall from the current 4.50% to 2.75% by the end of 2025.

graphic International environment

Austria Up-to-date (PDF)

As of March 2024.

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.

Focus Austria
Growth prospects slowly improving, but patience is needed

  • Austria's economy weakened in the first half of 2023 – economic slump still persists
    The Austrian economy grew by only 0.2 percent year-on-year in the first half of 2023. This slight plus resulted thanks to a statistical overhang, while after a plus at the beginning of the year, a significant minus in GDP had to be recorded in the second quarter compared to the previous quarter. Declining demand from abroad and at home led to a recession in the manufacturing sector, which towards the middle of the year increasingly spread to the services sector, which had initially benefited from catch-up effects from the pandemic, but was dampened due to the effects of inflation on real wage development and consumer sentiment.
  • Stagnation until the turn of the year 2023/24 – moderate recovery ex-pected from 2024 based on consumption
    The current indicators point to a continuation of the weak economic development at least until the end of 2023, even if no collapse is to be expected. We remain optimistic that an improvement in the framework conditions will have a positive impact on economic momentum in 2024 due to a decline in inflation. However, declining catch-up effects, the increase in the cost of credit and the high level of uncertainty with regard to geopolitical challenges, among other things, will only contribute to a change in sentiment in the domestic economy with a delay. Thus, the pace of recovery will remain manageable in 2024. After stagnation in 2023, we expect only a slight pick-up in economic growth to 0.9 percent in 2024.
  • Unemployment rate fell to 6.4 percent in 1H 2023 – upward trend since spring, but only moderate increase expected overall
    The average unemployment rate for the first six months was 6.4 percent (1- 6/2022: 6.5 percent). Since spring, however, there has been a slight upward trend, starting from only 6.2 percent at the turn of the year. Even if hopes for a revival of the Austrian economy around the turn of the year 2023/24 are fulfilled, the upward trend will only reverse with a delay. We expect the unemployment rate to remain at this level in 2024 after averaging 6.4 percent in 2023.
  • Second-round-effects slowed energy price-driven inflation decline in 1H23 – slowdown continues 
    The decline in inflation from over 11 percent at the beginning of the year to 6.1 percent in September should continue in the autumn. Inflation is expected to slow to below 5 percent by the end of the year. For 2023 as a whole, we expect average inflation of 7.8 percent. In view of the loss of support from energy price developments and the high wage momentum with real increases, the further decline in inflation will be slower in 2024. We expect inflation to average 3.6 percent, which will remain clearly above the ECB target.
  • Interest rate peak should be reached – easing of monetary policy in the euro area expected in the second half of 2024
    The ECB raised the refinancing rate to 4.50 percent and the deposit rate to 4.00 percent with effect from 20 September 2023. We assume that the interest rate ceiling has thus been reached. With the continuing easing of inflation, the beginning of an interest rate reduction cycle can be expected in the euro area from the second half of 2024.
  • Fiscal policy has switched to inflation compensation – budget policy more cautious 
    The relatively favorable budget development in the first half of the year, considering the general conditions, leads us to expect a renewed decline in new debt in 2023. We expect a budget deficit of 2.8 percent of GDP. For 2024, we consider a further reduction of the budget deficit to around 1.8 percent of GDP likely. The reduction in new debt, in combination with the high nominal GDP growth due to inflation, will have a positive impact on the development of total debt. We expect the debt ratio to improve to 75 percent at the end of 2024.
  • Interest rate hike dampened loan demand, weak economy dampened deposit growth - headwinds persist
    Loan growth was dampened to around 4 percent year-on-year in the first half of 2023 by the weak economy and tighter monetary policy, with demand for housing finance in particular falling very sharply. Despite higher interest rates, deposit growth declined to only one percent in the first half of 2023. The weak economy and the unchanged restrictive monetary policy will continue to shape the development of financing and deposits. With declining new business, a further slowdown in loan growth is to be expected and deposits are also unlikely to grow in 2023 as a whole

Focus Austria graphic

→ Focus Austria – Review and Outlook 2023/2024 (PDF)

As of October 2023.

About Focus Austria

"Focus Austria" - Review and outlook 2023/2024 offers a comprehensive analysis of the economic trends in Austria with special consideration of structural conditions. The publication provides an overview of the past year and offers an outlook on the developments expected in the current year and the following year. In addition to the current economic situation, the Austrian business location is assessed.

This might also be of interest to you: