Austria Faces Subdued Economic Growth with 0.9% GDP Forecast for 2026, Among EU's Lowest

Austria's Modest Growth Outlook for 2026

Austria is facing a challenging economic period, with the European Union's autumn economic forecast projecting a Gross Domestic Product (GDP) growth of just 0.9% for the nation in 2026. This forecast positions Austria's economic performance among the lowest within the EU, signaling a continued struggle to regain robust growth after a prolonged downturn.

The modest projection for 2026 follows a period of significant economic contraction. Real GDP in Austria contracted in 2024 for the second consecutive year. Furthermore, the EU Commission's spring forecast for 2025 indicated that Austria was the only EU country predicted to experience an economic decline, marking a third consecutive year of contraction. In 2024, Austria was already at the bottom of the EU with an economic decline of 1.2%.

Factors Contributing to Weak Economic Performance

Several factors have contributed to Austria's subdued economic outlook. A primary driver has been the weakness in the industrial sector, characterized by declines in investment, inventories, and industrial production. High energy prices and significantly increasing unit labor costs have eroded industrial competitiveness, impacting both domestic production and exports.

Additionally, high interest rates have dampened demand for capital goods and residential construction across Europe, including Austria. Stagnant consumption and declining investments have been identified as key triggers for the economic decline. Private consumption growth has stagnated despite rising real wages, as high inflation has eroded consumer confidence, leading to an increased saving rate among households.

Broader Economic Challenges and Future Outlook

Beyond the immediate GDP figures, Austria is grappling with other significant economic challenges. The general government deficit is projected to remain elevated, exceeding the EU's permissible value of 3.0% of economic output. The latest forecast indicates a deficit of 4.4% in 2025, slightly decreasing to 4.1% in 2026, before rising again to 4.3% in 2027. This persistent deficit is partly driven by inflation-linked indexation of public salaries, pensions, and social benefits, alongside increased spending in various sectors.

While the outlook remains cautious, there are expectations for a gradual recovery. Growth is anticipated to strengthen in 2026 and 2027, driven by increased private consumption and a stabilization of investment. The recovery of private consumption is expected as uncertainties subside, while investments are forecast to rebound due to rising demand from key trading partners, lower energy costs, and improved financing conditions.