OeNB Growth Forecast for 2025 Changed

The Austrian National Bank (OeNB) expects only a slight economic upturn in the coming years. "There are currently still a number of restraining factors that are only slowly fading," said central bank economist Gerhard Fenz at a press conference on Friday. Consumption, in particular, is still stalling, and financing costs remain relatively high. "The vast majority of leading indicators remain below average," Fenz said.

GDP Increase of 0.6 Percent Expected for 2025

For 2025, the central bank expects a real GDP growth of 0.6 percent, slightly more than previously. However, expectations for 2026 and 2027 remain unchanged from the September forecast, with an increase of 0.8 percent and 1.1 percent, respectively, and continue to be in the relatively low range.

According to National Bank Governor Martin Kocher, the reason for this is also the continued difficult situation for the export-oriented industry, accompanied by weak growth figures in Germany. In parallel, the economy is struggling with the sharp rise in labor costs, which have been above the euro area in recent years, and high energy prices, Fenz added. "Both together lead to Austrian companies perceiving a significant deterioration in their competitive position."

Fenz also highlighted China as a structural factor with regard to the export orientation of the Austrian economy. The country has caught up enormously technologically in recent years and now potentially competes with every fourth domestic export product. "Together with the fact that we are losing price competitiveness, this shows that we have a major challenge."

"Do Not Overdramatize"

While this finding should not be "overdramatized," Kocher added, it is important that Austria responds accordingly with innovation. In general, given the ongoing economic difficulties, he recommends setting long-term structural measures for the location, for example, to cushion the effects of demographic developments. Kocher advises against rather short-lived economic stimulus packages in view of the no less tense budget situation.

Budget and HICP

The budget deficit is expected to remain significantly above the Maastricht limit of 3 percent this year despite the government's austerity measures. A budget balance of minus 4.5 percent of GDP is forecast for 2025. Although it is expected to improve to minus 4.2 percent of GDP in 2026 and 2027, further efforts are necessary for consolidation, according to the central bank.

The situation in the labor market also remains difficult. According to the forecast, the unemployment rate will rise by 0.5 percentage points to 7.5 percent in the entire year of 2025 and will only start to decrease again from 2027.

At least the inflationary pressure is easing. For the entire year of 2025, the central bank economists still expect an increase in the Harmonized Index of Consumer Prices (HICP) to 3.6 percent, which is 0.7 percentage points more than in 2024 (2.9 percent). However, a decline to 2.4 percent is expected next year, followed by a further decrease to 2.1 percent each in 2027 and 2028. The decisive factor is the effect of the energy aid that expired this year, which will no longer apply next year.

(APA/Red)

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