Outlook for Austria: Moody's Made a Change

At the same time, Moody's confirmed the Aa1 rating. Moody's justified the change in outlook with the ongoing and significant weakening of Austria's financial strength. This would reflect a lower effectiveness of fiscal policy than previously assumed.

Different Outlooks for Budget and Debt Indicators

The outlooks for budget and debt indicators have changed compared to the assessment in February 2025. In the baseline forecast, a further increase in national debt is expected in the medium term. As the planned medium-term consolidation measures may not achieve the desired success, a more ambitious budget consolidation is required.

Additionally, age-related expenses and interest costs could be higher than expected. An increase in the employment rate of older workers and a net immigration of recently an average of 0.6 percent of the total population could counteract the unfavorable demographic development. Interest payments will rise in relation to revenues from 2.9 percent last year to 3.4 percent.

Furthermore, other EU countries could prompt Austria to increase defense spending. Currently, the government plans to raise defense spending from the current 1 percent of GDP from 2024 to 2032 to 2 percent.

Moody's Points to Competitive Economy

On the other hand, Moody's points to the country's competitive and prosperous economy as well as good debt sustainability, which justifies the Aa1 rating. However, the weak GDP growth, national debt, and moderate vulnerability to geopolitical risks should not be overlooked.

In the assessment in February, Moody's assumed a budget deficit of 3 percent and a gradual increase in national debt to 83 percent of GDP by 2030. Currently, the rating agency expects an increase in national debt to 88.4 percent of GDP by 2030 - reaching a historic high. The debt ratio forecasted by Moody's will only be higher in the United States of America and Canada in 2030. For this year, Moody's expects GDP growth in Austria of 0.2 percent. Next year, after two years of recession, it should increase by 1 percent.

"Will Strictly Implement Consolidation Plan"

For Marterbauer, the negative outlook is not surprising, as he explained, in February (the last assessment by Moody's) the extent of the budget problems in Austria was not known. With the already decided budget consolidation packages, the federal government is also bringing Austria back on track budget-wise: "We will strictly implement the consolidation plan." Additionally, the rating agency S&P recently confirmed the AA+ rating of the Republic of Austria with a stable outlook.

"As Finance Minister, I keep a close eye on the budget course of the Republic. I am confident that we will succeed in budget consolidation. Then the ratings will improve again," said Marterbauer.

(APA/Red)

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