Many downside risks

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While the European Commission is forecasting "modest growth" for the EU, the domestic economy is shrinking by 0.6% this year. This means that the Austrian budget deficit clearly exceeds the permitted three percent limit.

The "uncertainty and downside risks to the outlook" have increased, the EU Commission emphasized in its press release. Russia's protracted war of aggression against Ukraine and the intensified conflict in the Middle East would increase geopolitical risks and threats to energy security. "A further increase in protectionist measures by trading partners could affect global trade and put a strain on the EU's very open economy", the Brussels authority only indirectly addresses the punitive tariffs on many European products announced by US President-elect Donald Trump.

According to its autumn economic forecast presented in Brussels on Friday, the EU economy is set to grow by 0.9 percent this year and the eurozone by 0.8 percent. According to the forecast, the domestic economy will shrink by 0.6 percent this year before returning to a narrow growth path of 1.0 percent in 2025.

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Austria struggles with budget deficit
EU Commissioner for Economic Affairs Paolo Gentiloni also referred to Austria's budget deficit in his press conference: "Our forecast shows a trend towards a slight increase in debt and deficit in the coming years." "Austria's general government deficit is expected to exceed three percent of economic output in the years 2024-2026, while the public debt ratio will rise to over 80 percent," the Commission said in its report. A budget deficit of 3.6 percent is expected for this year, 3.7 percent for next year and 3.5 percent for 2026.

This puts the deficit well above the so-called Maastricht limit of three percent. New borrowing of a maximum of three percent of gross domestic product (GDP) is permitted, while the debt level of a member state may not exceed 60 percent of economic output. If this is not adhered to, the EU Commission can initiate deficit proceedings.

Brunner corrects deficit forecast upwards
Gentiloni explained on Friday that he was in contact with the Austrian authorities and would speak to the current Finance Minister Magnus Brunner (ÖVP) in the next few days: "The situation is important for the Commission to take into account." Brunner had defended his deficit forecast, which had been revised upwards shortly after the National Council elections, to journalists in Vienna on Thursday. At the beginning of October, the Ministry of Finance had increased its deficit forecast for the 2024 budget to 3.3 percent of GDP. Economic researchers from Wifo and IHS recently even forecast 3.7 and 3.5 percent respectively.

Inflation is falling
The weakening economy is accompanied by a further fall in inflation figures: Overall inflation in the eurozone is set to virtually halve to 2.4 percent in 2024, from 5.4 percent in 2023. It is expected to fall further to 2.1 percent in 2025 and 1.9 percent in 2026. This would also mean that the European Central Bank's target of keeping the inflation rate below 2% would be achieved again. In the EU, overall inflation will fall from 6.4 percent in 2023 to 2.6 percent, and by 2.4 and 2.0 percent in the following years. In Austria, prices are expected to rise by 2.9% this year and then by 2.1% and 1.7% respectively.

Unemployment remains fairly stable in all regions: 6.1 percent is expected for the EU this year and 5.9 percent next year, and 6.5 and 6.3 percent for the eurozone. Austria is slightly below the EU average at 5.3% in both years (according to the Eurostat definition).