Forecast for 2024

Plus 0.3%: Economy recovers only sluggishly

Rising real wages boost private consumption.

(Bild: luzitanija - stock.adobe.com, Krone KREATIV)

After a recession in 2023, the Austrian National Bank (OeNB) sees only a slight recovery in the domestic economy this year. Growth is forecast at 0.3% and will be driven by recovering private consumption and exports. inflation is likely to fall further.

In its forecast in March, the OeNB still assumed growth of 0.5% for 2024. HICP inflation is likely to weaken significantly this year, falling to 3.4% after 7.7% in 2023.

The OeNB's estimate lies between the latest forecasts for gross domestic product (GDP) from the Austrian Institute of Economic Research (WIFO) and the Institute for Advanced Studies (IHS). In March, these had predicted real growth of plus 0.2 and 0.5 percent respectively.

Faster growth in the following years
According to the National Bank, the economy is likely to recover somewhat this year, albeit at a sluggish pace. Rising real wages, which will boost private consumption, and increasing exports should contribute to this. On the other hand, gross fixed capital formation - such as the purchase of new equipment in production plants - is expected to continue to decline. Investments in equipment and residential construction in particular are being held back by high financing costs and poor profit expectations, the National Bank announced on Friday.

For the next two years, the bank expects GDP growth to accelerate to plus 1.8 percent (2025) and plus 1.5 percent (2026). It cites a significant increase in real consumption and an improvement in the external economic environment as supporting factors.

Dependence on Russian gas depresses forecast
Geopolitical tensions and Austria's dependence on Russian gas could still have a negative impact on the current growth forecast, but a stronger recovery in domestic demand could improve the outlook. Overall, the upside and downside risks for the growth forecast are balanced.

Decline in inflation
Harmonized inflation measured according to European standards (HICP) is likely to fall significantly in 2024 and halve to 3.4% according to the OeNB forecast, compared to 7.7% in 2023. Inflation should nevertheless continue to slow down in the next two years and thus support the economic recovery. The OeNB is forecasting a fall in the inflation rate to 2.7% (2025) and 2.5% (2026). Over the entire forecast period, however, core inflation - this rate excludes prices for fluctuation-prone categories such as energy and food - will be above the HICP inflation rate, writes the National Bank.

According to the forecast, unemployment will remain roughly the same between 2024 and 2026. For this year, a slight increase in the unemployment rate from 6.4 percent (2023) to 6.7 percent is initially expected, followed by declines to 6.5 percent (2025) and 6.3 percent (2026).

New debt increases slightly
The Republic's new debt is likely to rise above three percent again this year and thus above the Maastricht limit. According to the National Bank, this is due to the delayed effects of the inflation shock on public finances. New borrowing of 3.1 percent is forecast for 2024, 3.3 percent for 2025 and 3.0 percent for 2026. The OeNB expects the debt ratio to fall slightly from 77.8% (2023) to 77.3%. In the following years, however, it is likely to rise again slightly to 77.6% (2025) and 78.2% (2026).