Bleak outlook

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(Bild: APA/photobyphotoboy – stock.adobe)

The domestic economy continues to weaken and is lagging behind the European economy. Inflation is now even expected to be higher than before. It is therefore not surprising that people are reluctant to spend money.

"Due to the surprisingly sharp rise in inflation at the start of the year, we have raised our forecast for 2025 from an average of 2.2 percent to 2.5 percent," explained economist Walter Pudschedl. Inflation of 1.9 percent is still expected for 2026. The weak economy in the coming months should ensure a gradual slowdown in inflation. The price surge in January was triggered by the expiry of the electricity price brake, the increase in CO2 pricing and other price adjustments.

In any case, consumers are still very unsettled. Despite high real wage increases, they are still reluctant to spend and are saving more than usual, according to chief economist Stefan Bruckbauer. Over the course of the year, however, they should be able to overcome their reluctance to spend somewhat. However, a strong revival in consumption is not to be expected - the continuing high level of uncertainty, concerns about jobs and budgetary measures are working against this.

No good mood in the construction sector
In all sectors of the economy, the assessment of the situation is less favorable than in the eurozone, explains UniCredit Bank Austria in its latest report. The bank's economists revised the forecast for economic growth in 2025 downwards sharply from 0.9 to 0.3 percent. The economy had shrunk in the past two years.

(Bild: canva)

Despite a slight increase, the bank's economic indicator was still in negative territory in January at minus 2.6 points and thus, according to Bruckbauer, "at a very low level for the time being". The service sector and a somewhat brighter export environment supported the improvement. In addition to tourism and retail, the motor vehicle trade and transportation services also felt a tailwind. Only in the construction sector did the mood deteriorate again somewhat in January - the moderate development of orders in building construction was a cause for concern. In civil engineering, on the other hand, the situation has actually improved significantly, while the situation in the finishing trade is stable.

The UniCredit Bank Austria economic indicator is at a similar level to the annual average for 2023 and 2024, "both years that saw a GDP decline of around 1 percent in Austria", Bruckbauer recalled.

Another sharp rise in inflation compared to the eurozone
This January, according to a quick estimate by Statistics Austria, inflation rose significantly again to 3.3 percent, after easing from 7.8 percent to 2.9 percent in 2024 as a whole. This was once again a noticeable increase in inflation compared to the eurozone. According to an initial estimate by the statistics authority Eurostat, inflation there was 2.5 percent in January and only 2.3 percent in Germany, which has been hit hard by the economic crisis.

According to the economic indicator, Austria is only taking small steps out of the recession. "One swallow does not make a summer," emphasized Pudschedl. There are "currently no signs of a rapid end to the weak growth of the Austrian economy". "However, we remain optimistic that (...) Austria will be spared a third year of recession." However, increased protectionism in foreign trade and a restrictive fiscal policy would limit growth prospects, said Pudschedl, referring to US President Donald Trump's new customs regime and the interest rate policy of the European Central Bank (ECB).

Unemployment remains within limits
The effects of the persistent economic downturn on the labor market should remain limited. According to the bank's economists, the unemployment rate is likely to rise from 7% to 7.3% this year and then remain at this level in 2026. The increase in the labor supply will be slowed by the retirement of the baby boomer generation, lower immigration and the high level of part-time work.

Eurozone economy still grew before the turn of the year
By contrast, the eurozone economy grew minimally before the turn of the year. Gross domestic product (GDP) increased by 0.1 percent in the months of October to December compared to the previous quarter, as reported by the EU statistics office Eurostat on Friday. An earlier estimate had reported stagnation. The summer quarter had seen growth of 0.4 percent. For 2024 as a whole, this results in GDP growth of 0.7 percent for the eurozone.

However, there were major differences between the individual member states of the eurozone: While the economy in Spain continued to run at a comparatively high level and GDP increased by 0.8 percent quarter-on-quarter, the two largest economies in the currency area contracted. In Germany, economic output fell by 0.2 percent and in France by 0.1 percent. Stagnation was reported in Italy. Eurostat reports the strongest setback in the eurozone in Ireland. Here, economic output shrank by 1.3% in the fourth quarter, following unusually strong growth of 3.5% in the previous quarter.

This means that the countries of the monetary union are lagging behind the USA in economic terms, which achieved growth of 2.8% in 2024. The labor market in the eurozone has weathered the economic downturn quite well so far: According to Eurostat, the number of people in employment actually increased by 0.1% in the final quarter of 2024 compared to the previous quarter.