OeNB Report 2025/23: Economy stabilizes amid challenging environment

Economic Outlook for Austria from 2025 to 2028 (December 2025)

Gerhard Fenz, Friedrich Fritzer, Mathias Moser, Martin Schneider, Richard Sellner, Alfred Stiglbauer. With contributions from Beate Resch.

Oesterreichische Nationalbank, Business Cycle Analysis, konjunktur@oenb.at .

Austria’s economy is staging a modest recovery after a two‑year recession. We expect GDP to expand at a subdued rate of 0.6% in 2025. Growth will accelerate to 0.8% in 2026 and 1.1% in 2027. The weak economy is leaving its mark on the labor market. The unemployment rate rises to 7.5% in 2025 and will not come down before 2027. Inflation is expected to stand at 3.6% in 2025. As wage growth slows and energy price base effects drop out of the calculation, inflation will fall to 2.4% in 2026 and 2.1% in 2027. The budget deficit will narrow to 4.5% of GDP in 2025. If the fiscal consolidation measures that have been sufficiently specified so far are implemented, it will further decline to 4.2% in 2026 and 2027.

Highlights

After two years of recession, the Austrian economy returns to growth in 2025. At 0.6%, the rate of growth is subdued. Growth is expected to accelerate somewhat to 0.8% in 2026 and 1.1% in 2027 – a very modest recovery following a recession.

The export industry, a key pillar of the Austrian economy, is under pressure on several fronts. Weakness in German industry, US tariffs, high wage and energy costs as well as increasing competition from China are weighing on exports. As a result, the majority of the export-oriented industry remains relatively pessimistic about its situation – despite a slight recovery in 2025. In addition, the construction industry is not expected to deliver any strong boost to the economy in the next three years. Residential construction investment has fallen significantly since 2022, reflecting higher financing costs, the end of the residential construction boom and general economic weakness, and will only recover modestly in the coming years. The saving ratio is expected to gradually come down from its historically high levels in 2025 and 2026, driving modest growth in private consumption despite real household disposable income being almost flat.

The economic weakness of the past three years is increasingly filtering through to the labor market. The unemployment rate (national definition) rose by 0.5 percentage points to 7.5% in 2025 and will not come down before 2027. Losses in price competitiveness and strong pressure for austerity in the public sector have led to moderate wage agreements in the fall of 2025. The multiyear agreements in the metal industry, the public sector and the retail and wholesale sector are below the rolling inflation rate, some markedly so, and help to reduce cost-push price pressure.

The Austrian HICP inflation rate has stabilized at around 4.0% in recent months. We expect HICP inflation to decline to 2.4% in 2026 and to fall to 2.1% in 2027 and 2028. At 2.7%, core inflation, which excludes energy and food, is expected to remain above headline inflation in 2026, and come down to 2.1% in the following years, a level consistent with HICP inflation. The decline in inflation is mainly driven by weaker wage growth, energy price base effects, falling energy commodity prices and the appreciation of the euro.

The Austrian general government budget deficit will narrow slightly to 4.5% of GDP in 2025. We expect the deficit to narrow to 4.2% in 2026 and 2027, based on fiscal consolidation measures that have been announced so far and are sufficiently specific.

In 2028, the deficit will widen to 4.4% due to the introduction of EU-wide CO2 pricing under the ETS2 emissions trading system. The current national carbon tax expires at the end of 2027, but the revenues from ETS2 will not be recognized as government revenue until 2029. Austria’s debt-to-GDP ratio is expected to be 81.9% in 2025 and to increase to 86.8% by 2028, driven by persistently high primary deficits and low growth in nominal gross domestic product.

The risks to growth are largely balanced: While the need for additional fiscal consolidation and the high level of geopolitical uncertainty represent downside risks, a stronger recovery in residential construction and a recovery in consumer confidence could boost growth.

In the inflation forecast, upside and downside risks are currently balanced as well. Additional fiscal consolidation in the public sector represents an upside risk. The reduction in the electricity levy, approved after the finalization of the December outlook, could not be incorporated in our calculations. This measure is expected to reduce 2026 HICP inflation by around 0.1 percentage points.

1 Global uncertainty and declining competitiveness weigh on export recovery

Austria’s export-oriented economy is facing a challenging environment. In 2024, Austria’s goods exports declined by nearly 5%. Exports to the EU were particularly affected, reflecting the weak economic situation in that region. By contrast, exports to America and Asia increased. Exports to the USA showed particular strength in 2024, growing at a rate of 10%. This growth was driven by exports of pharmaceutical products. More recently, however, this momentum has slowed down considerably.

In 2025, export activity was significantly impacted by US tariffs: Strong growth in real exports of goods and services in the first half of the year was followed by a slump in the second half. We expect the negative impact of US tariffs on growth to fade starting in 2026.

In addition to US tariffs, high wage and energy costs and increasing competition from China are also weighing on export growth (see box 1). Austria’s unit labor cost increased by 30% between 2019 and 2024, well above the euro area average of 20%. Although growth in unit labor cost slowed noticeably in 2025, the Austrian export industry still saw a significant 4.5% decline in market share. We expect a further decline in unit labor cost growth over the forecast horizon. This means that Austria is unlikely to face further losses in price competitiveness. As a result, the loss of market share is likely to slow down considerably.

Chart 1

The current account surplus narrowed in 2025 due to the decline in exports year on year and will remain at around 1% of nominal GDP in the following years.

2 Low capacity utilization and weak construction sector weigh on investment growth

After almost two years of industrial recession, Austrian goods production saw a noticeable rebound in the first quarter of 2025. The recovery was driven by energy-intensive sectors such as metal production and the chemical industry as well as the automotive and pharmaceutical sectors. In the following two quarters, however, growth slowed down significantly. The sentiment indicators of the European Commission and the UniCredit Bank Austria Purchasing Manager Index are pointing to a slight improvement in the fourth quarter of 2025, but the indicators remain predominantly well below average. The OeNB's Economic Indicator shows as of December 2025 that weak industrial sentiment continues to be a slight drag on economic growth in the fourth quarter.

The industrial recession is leaving its mark in the form of weak capacity utilization in industry. At the beginning of October, capacity utilization stood at 82%, about 3 percentage points below the long‑term average and at roughly the same level as at the end of 2020. New corporate lending has picked up since early 2025 but remains at a low level (75% of 2019 lending). Due to the sluggish recovery in goods production and weak capacity utilization, investment in plant and equipment is likely to recover only moderately. After a sharp 4.5% decline in 2024 and an unexpectedly strong recovery in the first three quarters, we forecast that investment in plant and equipment will expand by 7.8% in 2025. Growth will slow to 2.5% in 2026, 1.8% in 2027 and 1.9% in 2028.

Residential construction investment in Austria fell by around 20% in real terms between the beginning of 2022 and the end of 2025. It is expected to contract by 4.1% in 2025. Compared to other European countries, Austria is facing one of the deepest crises in residential construction. Due to the rising number of households and rising incomes, single-family home construction by households is expected to pick up. This has already been reflected in a slight increase in building permits since the beginning of 2024. By contrast, construction activity by commercial developers – whose output has halved since 2019 – is likely to remain weak. Following the sharp decline in 2025, residential construction investment is expected to stagnate in the following year. For 2027 and 2028, we anticipate moderate growth of 1.1%. Nonresidential construction investment and other investment fell by around 15% between 2021 and 2024. It is expected to grow by 1.8% in 2025. Thereafter, we expect investment in this category to expand by 1.1% in 2026, 0.7% in 2027 and 1.0% in 2028. Investment in research and development declined by 0.8% in 2024 and will be largely unchanged in 2025. We then expect research and development investment to recover to 1.9% in 2026, 3.2% in 2027 and 3.1% in 2028. Overall, investment in research and development, residential construction, and plant and equipment is therefore projected to grow at a slower rate than the average between the financial crisis and the COVID‑19 pandemic.

3 Unemployment remains elevated – collectively agreed wage growth revised down

Persistently low economic growth has led to a noticeable increase in unemployment in 2025: The unemployment rate (national definition) rose by 0.5 percentage points to 7.5%. The Austrian economy will grow modestly in 2026, but this will not be sufficient to reduce unemployment. Looking further ahead, the unemployment rate is expected to come down slightly to 7.3% in 2027 and 2028. Total employment in persons will be flat in 2025 and grow by an average annual rate of 0.5% over the forecast horizon. The number of total hours worked has already started to rebound this year and will mirror the trend in the number of people employed from 2026 to 2028.

As many relevant collective bargaining agreements have already been concluded, 2026 growth in collectively agreed wages and salaries can be forecast with a high degree of certainty: After an increase of 3.9% this year, they will grow by 2.4% in 2026, representing a downward revision of 0.3 percentage points compared with the OeNB’s previous September 2025 outlook. This decline, which reflects a partial departure from the practice of allowing wages to catch up with consumer price inflation, is primarily attributable to three major sectors in which relatively low settlements have been reached.

In the metal industry, a two-year agreement was concluded in September 2025. At the beginning of November 2025, collectively agreed minimum wages were increased by 2%, which is well below rolling inflation (although two one-time EUR 500 payments are made in the first year of the collective agreement). In November 2026, collectively agreed minimum wages will rise by another 2.1% (but no one‑time payments will be made). In the public sector, the difficult budget situation led to a renegotiation of the two-year agreement concluded in 2024. Contrary to the original plan to use rolling inflation as a basis for pay increases at the beginning of 2026, the new three-year agreement provides that salaries will increase by 3.3% in 2026, and not before July. In August 2027, public sector pay will be raised by an average of 1%. A third increase will follow in September 2028, also by an average of 1%. This means that the average annual increase from 2026 to 2028 will be 1.5%, well below the inflation forecast for that period. In the wholesale and retail sector, too, a two-year agreement had been in place for white-collar workers, but the terms for the second year were renegotiated. At the start of 2026, minimum salaries will rise by 2.55%, which is just under 0.5 percentage points below rolling inflation. Originally, pay increases were to exceed rolling inflation by 0.5 percentage points.

4 Saving ratio falls but remains above pre-crisis levels

Real disposable net household income rose by a strong 4.2% in 2024. This was mainly driven by the strong increase in real net wages per employee, which contributed 1.6 percentage points, higher government benefits (+1.8 percentage points; mainly delayed pension increases) and transfers such as the “climate bonus” payments (+0.7 percentage points), which was increased in 2024 compared to the previous year. However, real private consumption grew by only 1%, a rate well below income growth. The saving ratio increased from 8.7% in 2023 to 11.6% in 2024.

Consumer sentiment remains subdued in 2025. The European Commission's consumer sentiment indicator remained flat at a below-average level in 2025. Consumers’ unemployment expectations rose slightly and remained above average. We therefore forecast that real private consumption will grow by only 0.5% in 2025. Real household disposable income is expected to decline by 0.4%, implying a slight decrease in the saving ratio. As in 2024, employment will not make a significant contribution to real household disposable income growth in 2025. Due to the significantly lower growth in collectively agreed wages in 2025, the contribution of real net wages per employee will also fall (+0.4 percentage points). In addition, we expect a decline in contributions from other income (capital, self‑employment and interest), which together will contribute -1 percentage point. Fiscal consolidation will be a drag in 2025, while the measures to curb government benefits will not have a major effect until 2026.

Chart 2

For the years 2026 to 2028, real household disposable income is expected to increase again. Employment growth will increasingly contribute to income growth, with its contribution peaking at 0.3 percentage points in 2027. By contrast, real wage growth per employee will remain modest and not make a noticeable contribution before 2027. Contributions from other types of income will be largely neutral. Government benefits will make a significantly lower contribution to real disposable net household income than in 2024 and 2025.

Growth in real private consumption is expected to exceed income growth between 2026 and 2028. As a result, the net saving ratio will drop from 11.6% in 2024 to 9.4% in 2028. This places it above the average of 7.6% recorded between the financial crisis and the COVID-19 pandemic (2012–2019) and roughly in line with the longer-term average of 9.6% since Austria joined the euro area (1999–2019). ⁴

5 Inflation will come down significantly

Austrian HICP inflation has stabilized at a high level of about 4% since August 2025, after having risen sharply in the preceding months. This increase was primarily driven by higher prices for clothing, footwear and energy. While clothing prices have since returned to more normal levels, energy prices remain above average. In addition, government consolidation efforts have moderately increased inflation, particularly through higher prices for administrative services.

5.1 Inflation slows by more than 1 percentage point in 2026, drops to 2.1% in 2027 and 2028

Inflation is expected to decline across all special aggregates over the coming quarters. In particular, energy price inflation is likely to fall sharply at the beginning of 2026, mainly due to a strong base effect in 2025, when network charges for electricity and gas increased significantly and government energy subsidies, such as the electricity price cap, expired. In addition, wholesale prices for household energy have declined sharply since early 2025. This drop is likely to be increasingly reflected in consumer prices. A similar trend can be seen in crude oil prices, which fell sharply in 2025. Futures prices ⁵ suggest that they will remain on a moderate downward trend. These declines will more than offset the increase in network charges for household energy at the beginning of 2026 and the announced increase in district heating prices in Vienna. The reduction in the electricity levy, which is to take effect in January 2026, was approved after the December outlook was finalized and therefore not incorporated in our calculations. ⁶ It is likely to reduce inflation by about 0.1 percentage points.

Inflation in services and nonenergy industrial goods is also expected to ease. The main drivers are a significant slowdown in wage growth, the appreciation of the euro against the US dollar and a weak economy. In addition, an affordable housing package ⁷ agreed in September 2025 limits rent increases in regulated and unregulated markets. This is expected to reduce 2026 HICP inflation by about 0.1 percentage points. ⁸ Food inflation is also expected to decline, as falling energy and input costs, together with lower wage increases, slow down price increases.

HICP inflation is forecast to come to 2.4% in 2026. As part of fiscal consolidation efforts, the federal government and Vienna are implementing significant price and fee increases (tobacco tax, KlimaTicket public transport pass, charges for the e-card, the Austrian health insurance card, local government fees, etc.). However, due to their low share in the basket of goods and services, they only have a moderate impact, accelerating inflation by around 0.2 percentage points. At 2.7% in 2026, core inflation will continue to be above headline HICP inflation, as inflation in the services sector remains above average.

Chart 3

The following subsections present a forecast for the main components of inflation as well as an outlook for Austria's inflation differential with the euro area.

5.2 Energy sector: Inflation comes down driven by base effects as well as falling crude oil and wholesale household energy prices

Energy inflation has exceeded 10% in recent months and is expected to remain elevated through the end of the year. The main drivers are household energy prices, particularly electricity, as well as district heating prices, which are rising by around 15% in Vienna.

At the beginning of 2026, inflation in this category will slow down significantly due to strong base effects. This reflects the expiry of government support measures as well as increases in carbon taxes and network charges implemented at the beginning of 2025. In addition, falling crude oil prices and declining wholesale prices for electricity and gas will exert downward pressure on inflation. According to current futures prices, crude oil prices are expected to fall by around 10% in 2026, while wholesale prices for household energy are projected to decline between 7% and 15%. These drops more than offset the impact of another increase in network charges and the rise in Vienna district heating prices. The present outlook therefore expects energy price inflation to fall from 7.7% in 2025 to -1.4% in 2026. The reduction in the electricity levy, approved after the finalization of the December outlook, is likely to reduce 2026 energy price inflation by another percentage point. For the subsequent years, we project a moderate increase in energy-sector inflation: 0.6% in 2027 and 1.4% in 2028.

The forecast assumes that the CO2 price will remain unchanged at EUR 55 per tonne in 2026 and 2027. From 2028 onward, we expect a price of around EUR 46 per tonne following the introduction of ETS2, the European emissions trading system. Between 2026 and 2028, carbon pricing is unlikely to have a noticeable impact on the inflation rate. The 2028 reduction in the CO2 price is unlikely to be fully passed on to consumers. If the price reduction were to be passed on in full, energy inflation would go down by about 1 percentage point and overall inflation would slow by about 0.1 percentage points.

5.3 Services inflation, a key driver of headline inflation

Services are currently the most important driver of headline inflation. In November 2025, the services sector accounted for slightly more than half of the 4.1% HICP inflation rate. Services inflation is expected to amount to 4.4% in 2025, decline to 3.8% in 2026, and fall further to 2.8% in 2027 and 2.6% in 2028. By 2028, inflation in the services sector will therefore be only moderately above its long‑term average. The decline mainly reflects a significant slowdown in wage growth, which is projected to decrease by around 2 percentage points between 2025 and 2028.

In addition, due to the affordable housing package approved in September 2025, rent inflation is expected to make a smaller contribution to headline inflation than in previous years. Increases in regulated rents are capped at 1%, while the following ceiling applies to unregulated rents: If inflation exceeds 3%, only half of the portion above that threshold can be passed on. With headline inflation projected to be 3.5% in 2025, unregulated are therefore expected to rise by 3.25% in 2026.

Service components that are not wage-dependent, such as administered prices, will not contribute to the decline in 2026. Much rather, the recent fiscal consolidation is leading to fee increases, particularly in the services sector. The charge for e-cards, the Austrian health insurance card, rises sharply (+81%), as do fees for passports and driving licenses (+48%). The prices of the KlimaTicket public transport pass will increase in two steps, by 19% in 2025 and by another 8% in 2026. Vienna is also raising prices for public transport tickets and parking fees by about 30%. Overall, these fee increases will contribute just under 0.4 percentage points to services inflation in 2026.

5.4 Wages, lower energy costs and euro appreciation reduce food inflation

Food inflation is expected to slow from 3.6% in 2025 to 2.8% in 2026. Despite this marked deceleration, inflation in this sector will remain about 0.5 percentage points above its long‑term average in 2026. The appreciation of the euro puts downward pressure on inflation as it reduces the cost of imported food commodities. In addition, lower energy costs reduce production and input costs, which is likely to be reflected in lower consumer prices. Slower wage growth is also expected to help slow inflation in this category.

The tobacco tax increase adopted as part of fiscal consolidation will raise food inflation by around 0.3 percentage points in 2026 (and headline inflation by around 0.1 percentage points). From 2027 onward, this tax‑related base effect will drop out of the calculation. Coupled with energy prices that remain low, this means that food inflation is expected to decline to 2.5% in 2027 and 2.3% in 2028. As a result, food inflation will return to a level close to its long‑term average.

5.5 Recent rise in industrial goods inflation is not persistent

Nonenergy industrial goods inflation jumped to 2.1% in August 2025, mainly driven by higher prices for clothing and footwear. Inflation in this category fell back to 1.1% in September and remained unchanged at that level in October. According to EU business and consumer surveys, short-term price expectations (for the next three months) in key retail segments ⁹ are currently in line with their long-term averages. For the forecast horizon, we expect inflation rates of about 1%.

5.6 Revisions compared to the September outlook

Compared to the September 2025 outlook, the OeNB leaves its HICP inflation forecast virtually unchanged for 2025 and 2026, and makes a slight downward revision for 2027. The slight downward revision for 2027 mainly reflects lower projected growth in labor costs compared to the previous outlook. At the same time, the forecast for energy inflation has been revised up due to forecast errors in recent months, which means that the downward revision to headline inflation is smaller than to core inflation.

5.7 Risks to the inflation forecast are balanced

Potential additional fiscal consolidation efforts by the public sector represent a slight upside risk to the inflation forecast. The inflation rate would rise if the consolidation was implemented by means of further price increases for government‑provided goods and services. The reduction in the electricity levy, approved after the finalization of the December outlook, could not be incorporated in our calculations. This measure is expected to reduce 2026 HICP inflation by around 0.1 percentage points. Overall, the risks to the inflation forecast are balanced.

5.8 Inflation differential with euro area narrows due to energy and services

In late 2024, Austria’s inflation rate was slightly below that of the euro area. This was mainly due to government support measures (such as the electricity price cap), which had lowered energy prices in Austria. FBixIn the euro area, by contrast, most measures to reduce energy prices were phased out at earlier dates.

Chart 4

At the beginning of 2025, however, energy prices once again led to a widening of the inflation differential. The phaseout of government support measures caused energy inflation in Austria to rise sharply in January 2025. For 2025 as a whole, Austria is expected to record an annual inflation rate that is roughly 1.5 percentage points above the euro area average. Energy and services contribute to this differential in roughly equal measure. Food and nonenergy industrial goods have little impact on the gap with the euro area inflation rate. In 2026, the inflation differential is expected to narrow by about 0.8 percentage points due to a base effect resulting from the increase in the inflation rate at the beginning of 2025. The contribution of services will also decline in 2026 and continue to fall further in 2027 and 2028. This trend is mainly driven by a marked slowdown in wage growth. According to our current forecast, growth in compensation per employee will on average be 0.7 percentage points lower than in the euro area between 2026 and 2028.

6 More fiscal consolidation efforts needed

The general government budget balance came in at -4.5% of GDP in 2025, a 0.2 percentage point improvement over 2024. The OeNB’s June 2025 outlook had forecast an even stronger improvement. The downward revision mainly reflects a weaker economic environment: Expenditures for healthcare, pensions, unemployment and interest payments are somewhat higher than anticipated in the second quarter of 2025. In addition, revenues from VAT and corporate tax remained below previous estimates. For 2026, based on the fiscal consolidation measures that have been announced so far, we expect the budget deficit to narrow to 4.2%. As things stand, only few budget cuts are in effect and/or have been sufficiently specified for 2027 and 2028, and the cyclical contribution remains limited. Consequently, the budget deficit is not expected to narrow further. The deficit will widen to 4.4% in 2028, driven by a statistical effect related to the decision to postpone the introduction of the EU's ETS2 emissions trading system by one year. Austria’s national carbon tax will be phased out at the end of 2027, but ETS2 revenues will not be recorded as government revenue until 2029.

Chart 5

Austria’s debt-to-GDP ratio is expected to be 81.9% in 2025 and to increase to 86.8% by 2028, This increase is driven both by persistently high primary deficits and by weak nominal GDP growth (denominator effect). We estimate that the latest fiscal consolidation package will only have a small impact on GDP growth, as many of the measures have only very little direct impact on demand. In fact, the public sector is making a positive 0.15 percentage point contribution to growth this year: Although price and budget measures have a negative impact on growth, government consumption continues to grow at a strong pace. In subsequent years, the positive effect of government consumption will decrease due to the need for austerity. What remains is the negative annual 2 percentage point effect of the fiscal consolidation. A further fiscal consolidation package, however, could also affect areas that trigger stronger growth effects, such as public sector investment. This would represent an additional downside risk to growth.

Austria is currently subject to an excessive deficit procedure (EDP) and has committed to a multiyear path of fiscal consolidation. Compliance with this commitment is assessed by the European Commission and measured only by annual expenditure growth (net, adjusted for tax policy, excluding interest payments). Austria also plans to activate a national defense exemption, which allows a part of defense spending to be excluded from the calculation. For 2025 and 2026, expenditure growth is well below the prescribed limits, meaning Austria goes beyond what is required. In 2027, the targets will only be met if the exemption is activated. In 2028, Austria exceeds the expenditure path, even with the exemption, but only marginally so, remaining within the margin of permissible deviations. Nevertheless, additional consolidation will be necessary to achieve the planned deficit of 3% in 2028.

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8 Annex of tables