War in the Middle East clouds economic outlook for Austria

The Oesterreichische Nationalbank (OeNB) presents its March 2026 Interim Outlook for 2026 to 2028 for Austria and its 2025 financial statements and Annual Report

Today, the OeNB published its Interim Outlook for the period from 2026 to 2028. It shows that the war in the Middle East has made the economic outlook for Austria more uncertain. The OeNB currently expects Austria’s economy to grow at a subdued rate of 0.5% in 2026. After that, growth is expected to accelerate to 1.0% in 2027 and 1.1% in 2028. Owing to higher commodity prices, inflation in Austria is forecast to reach 2.7% in 2026 as a whole. Judging from market expectations, commodity prices will decline again substantially over the course of 2026, causing inflation to subside to 2.3% in 2027 and further to 2.1% in 2028. The unemployment rate in Austria is projected to remain at 7.5% in 2026. The OeNB’s annual financial statements and Annual Report for 2025, which were also presented today, indicate an upward trend for the OeNB’s operating result.

Economic recovery only temporarily interrupted by war in the Middle East
“Emerging from a two-year recession, the Austrian economy again expanded at a moderate 0.7% in 2025. Growth remained positive at the beginning of 2026, with recent monthly data available for both January and February indicating robust growth developments. However, the outbreak of the war in the Middle East on February 28, 2026, and the subsequent marked rise in energy prices have again caused great uncertainty, significantly clouding the economic outlook,” OeNB Governor Martin Kocher commented on the current situation. Considering these factors, the OeNB at present expects GDP growth in Austria to come in at 0.5% in 2026. Compared to our December 2025 outlook for Austria, this implies a downward revision of growth expectations by 0.3 percentage points for 2026. The OeNB’s Interim Outlook is based on current market expectations about global energy commodity prices, which are expected to drop relatively quickly from their currently high levels in the second half of 2026. This means that based on the current situation, the positive growth dynamics seen at the beginning of 2026 are expected to weaken only temporarily. For 2027 and 2028, the OeNB expects Austria’s economy to again expand by about 1%.

HICP inflation at 2.7% in 2026 – war in the Middle East contributes +0.6 percentage points
The OeNB’s current inflation forecast is strongly driven by the underlying market expectations about global commodity price developments. We expect inflation in Austria to climb to just over 3.0% until May 2026, before dropping to about 2½% until the end of year. For 2026 as a whole, we currently project inflation to come to 2.7%, followed by a decline to 2.3% in 2027 and 2.1% in 2028. Since the start of the war in the Middle East, uncertainty has been increasing markedly, which is why our inflation forecast for Austria is subject to significant upside risks.

More fiscal consolidation efforts needed
Compared to our December 2025 outlook, no substantial changes have been made with respect to the fiscal outlook. In December 2025, we forecast a general government budget balance of -4.5% for 2025, -4.2% for 2026 and 2027, and -4.4% for 2028 (all as a percentage of nominal GDP). From today's perspective, the 2025 figures will be slightly better than expected, thus leading to an improved starting position for 2026. At the same time, however, the outlook for GDP growth has deteriorated. Moreover, since the December 2025 outlook, the Austrian government has approved reductions in the electricity levy and in VAT on basic food items. The upward revision of the inflation outlook for Austria has no significant effects on the general government budget balance. We therefore expect budget balance developments for the period from 2026 to 2028 to remain similar to those projected in December. Revisions to the outlook for 2027 and 2028 will only be possible once the government has completed the budget.

Outlook subject to unusually high uncertainty
“The future course of the war in the Middle East and its impact on energy prices, financial markets and the confidence of economic agents are highly uncertain at this point in time,” OeNB Governor Kocher explained. To account for this uncertainty, the OeNB has calculated alternative scenarios based on the assumption of a further escalation or prolongation of the war. Most notably, a sustained and more pronounced rise in oil and gas prices would pose a risk to the outlook for the Austrian economy. In a scenario assuming oil prices of USD 100 per barrel and natural gas prices of EUR 70 per MWh on an annual average, growth rates would decline to just 0.2% in 2026. HICP inflation, in turn, would climb to 3.8%. Should things take a particularly unfavorable turn – if, e.g., higher risk premiums, continued high geopolitical uncertainties, weaker export demand and rising fertilizer prices were to materialize – this might send Austria into a mild recession in 2026. Economic output would contract by 0.2%, while HICP inflation would go up to 4.2%.

These exceptionally high risks outlined for Austria would also apply to the euro area as a whole. Against this outlook, the Governing Council of the ECB reiterated its commitment, at its most recent meeting of March 19, 2026, to ensure that inflation in the euro area stabilizes at the 2% target in the medium term. The Eurosystem is well positioned to respond quickly and decisively to the current challenges, if needed: Inflation has been at around the 2% target, longer-term inflation expectations are well anchored at 2% and nominal short-term interest rates have also stood at 2%, i.e. at rates largely considered neutral. Incoming data in the near future will provide more insight into the second-round effects caused by the rise in energy prices. These will be decisive for determining the appropriate monetary policy response. The Governing Council of the ECB will continue to use its data-driven approach as a guidepost to determine the appropriate monetary policy stance, setting measures on a meeting-by-meeting basis.

OeNB operating result indicates upward trend
“The OeNB’s operating result still reflects the impact of the monetary policy measures taken to address the successive crises in recent years and restore price stability,” explains OeNB Vice Governor Edeltraud Stiftinger. Like the ECB and many other Eurosystem central banks, the OeNB again recorded a negative operating result for 2025 as a result of these monetary policy measures. According to Stiftinger, however, “the 2025 figures indicate that things are looking up again. The net loss for the 2025 financial year was -EUR 1,023 million, half the amount recorded for the previous year. Moreover, the OeNB’s monetary policy-related expenses resulting from the expansionary monetary policy measures taken until 2022 will continue to decrease in the future. Thereafter, the OeNB expects to make profits again, which it will use to compensate for the losses incurred. The OeNB’s financial strength remains unaffected and its ability to take action is in no way compromised.” Taking into account the loss carried forward from the previous years, this brings the OeNB’s balance sheet loss for the 2025 financial year to a total of -EUR 5,207 million. This loss will be carried forward in full to the 2026 financial year. 

The OeNB has been posting losses because of the interest rate mismatch between monetary policy assets and liabilities. Specifically, during the past crises up until 2022, the OeNB purchased many securities and government bonds with low or negative interest rates. While this monetary policy response played a major role in preventing deflation, stabilizing financial markets and keeping the economy afloat, financially the OeNB has benefited only marginally from the related measures. When, more recently, key interest rates were raised to keep inflation in check, the OeNB, in turn, has been paying higher interest on the deposits it holds for Austrian banks. The amounts paid by the OeNB over the past few years were a multiple of the income it earned on the monetary policy asset purchase programs. “In 2025, however, the OeNB’s interest expense had already halved,” said Stiftinger.

On December 31, 2025, the OeNB’s total assets amounted to EUR 256 billion, up EUR 19 billion or 8% compared to the previous year. Total assets had peaked at EUR 275 billion in 2021. From then on, total assets declined continually until 2024, mainly because securities held for monetary policy purposes matured. The renewed increase in total assets seen in 2025 is, to a large extent, attributable to the high gold price driving up the value of the OeNB's gold reserve holdings, which have remained unchanged at 280 tons for decades. As is common practice within the Eurosystem, profits resulting from the rise in gold prices will not be taken to the profit and loss account, but will remain on the OeNB’s balance sheet as valuation reserves.

More than EUR 60 million for research in Austria
The OeNB is pleased to report that both its own funds portfolio and the portfolio earmarked for funding research performed well in 2025. We are therefore able to provide EUR 50 million of funding to the National Foundation for Research, Technology and Development (FTE-Nationalstiftung). The OeNB has a longstanding commitment to promoting research. In keeping with this tradition, in 2025 we provided a total of more than EUR 60 million in funding for research in Austria, supporting, e.g., Austrian economic research institutions and granting OeNB Anniversary Fund assets to selected research projects. In doing so, we placed a particular focus on supporting young scientists and basic research projects.