OeNB lowers forecast

Austria’s economy is in the grip of recession

The Oesterreichische Nationalbank's forecast for the domestic economy is anything but rosy.

(Bild: amazing studio - stock.adobe.com)

The Oesterreichische Nationalbank's (OeNB) forecast for the Austrian economy is anything but rosy. Gross domestic product (GDP) is expected to fall by one percentage point from +0.3 percent to -0.7 percent and by 0.8 percentage points from +1.8 percent to +1.0 percent in 2025. 

At the end of June, Wifo and IHS were still forecasting stagnation (0.0% growth) in the domestic economy and a minimal increase of 0.3% in their quarterly economic forecast for 2024. At the beginning of September, Raiffeisen Research was already forecasting a GDP decline of 0.5% for this year.

Two years of recession in a row
Domestic economic output shrank by 0.8 percent in 2023. This means that the Austrian economy is heading for two years of recession in a row.

"The downward revision is due to a weaker historical GDP trend and the GDP decline in the second quarter of 2024, but also to a now weaker estimate for GDP growth in the second half of 2024," write the central bank economists in their interim forecast published on Friday.

According to the OeNB, domestic economic output shrank by a total of 2.1 percent between its peak in the second quarter of 2022 and the second quarter of 2024. This is primarily due to the industrial recession and a marked reluctance to consume. According to the National Bank, industry is suffering above all from the weakness of the international economy. Energy-intensive and construction-related industries are the main reason for the industrial recession.

Unemployment rate likely to rise
Due to the weaker economic development, the OeNB is also raising its forecast for the unemployment rate in Austria by 0.4 percentage points to 7.1 percent for 2024 and by 1.0 percentage points to 7.5 percent for 2025.

However, the OeNB economists have not re-estimated the budget deficit in their current interim forecast. In June, the economists forecast a government financing balance of -3.1% in 2024 and -3.3% in 2025. The updated Wifo/IHS economic forecast at the beginning of October is now eagerly awaited. In view of the recession in 2024 and the significantly lower growth, the budget deficit is expected to be higher than previously forecast.

Inflation continues to fall
On the other hand, there is good news regarding inflation: compared to the June forecast, the OeNB economists have lowered the expected inflation rate by 0.4 percentage points to 2.9% (2024) and 2.3% (2025). The decline is primarily due to the weak economic development and falling costs at producer level.