Austria’s economy remains under pressure, with the manufacturing sector struggling and weakness spreading to various service factors. After modest GDP growth of 0.2% in Q1 2024, activity stagnated in Q2. By autumn, economic sentiment remained pessimistic, but the decline in inflation showed early signs of supporting consumption. GDP grew by an estimated 0.3% in Q3, with a moderate and uneven recovery expected to continue, driven by real wage growth and monetary easing. Following an estimated 0.5% decline in 2024, GDP is according to Bank Austria forecast to grow by 1% in 2025.
Unemployment is set to rise in 2024 due to weak activity in industry and construction. The seasonally adjusted unemployment rate was 7.2% in October, with an annual average of 7.0% expected in 2024. The labor market may worsen further before stabilizing in 2025 as the economy recovers. Unemployment is projected to increase slightly to 7.2% in 2025 but remain below pre-COVID levels, as labor supply grows only slowly due to demographics.
Inflation has fallen significantly, reaching 1.8% in October, largely due to lower energy prices. UniCredit Bank Austria projects inflation to rise slightly above 2% by year-end, driven by the removal of the electricity price cap. On average, inflation is forecast at 2.9% in 2024, falling to 2.2% in 2025. The ECB has accelerated interest rate cuts amid weak economic prospects and lower inflation. Cuts totaling 75 basis points since June brought the deposit rate to 2.75% in October, with further reductions likely. By 2025, rates could drop to 2%, signaling a shift toward more expansionary monetary policy.
