OeNB Forecast: 3.8 Percent Deficit and Slight Decline in Economic Growth Expected
Despite the efforts of the new black-red-pink government to save the budget, the Austrian National Bank (OeNB) does not expect the deficit to fall below the Maastricht threshold of 3 percent this year. The government does not want to adopt further measures due to feared negative economic effects. Federal President Alexander Van der Bellen is relaxed about a possible EU deficit procedure.
OeNB also expects a deficit of more than 3 percent in 2026 and 2027
Van der Bellen could "only agree" with Fiscal Council Chairman Christoph Badelt and Finance Minister Markus Marterbauer (SPÖ): "No reason to panic," said the Federal President on Tuesday at a press conference with his Albanian counterpart in Vienna. In the event of a deficit procedure, only formal consultations with the EU Commission would take place. "That's all." He therefore "did not understand why such a drama was made about whether there is a deficit procedure or not," said the Federal President. However, the background is "indeed serious," Van der Bellen continued. The budget is "easy to consolidate" in times of a boom, but caution is advised in the event of a recession. "Why? Because too strong spending cuts and tax increases would further exacerbate the recession." Therefore, it is a situation that "requires a delicate touch."
The government apparently sees it similarly: "New or higher taxes are currently not the right way, as they would only additionally burden the economy," said Finance State Secretary Eibinger-Miedl (ÖVP) in a statement. The goal is to revive the economic engine, "therefore the government relies on predictability and long-term reforms." An EU deficit procedure is accepted. A deficit procedure is possible, said the ÖVP State Secretary. "Whether such a procedure will actually be initiated depends on further economic development and will be decided by the EU Commission in July 2025." The government wants to stick to the agreed consolidation course and the savings planned for this year and next, she emphasized.
The NEOS sounded somewhat different. Secretary General Douglas Hoyos assured in a statement that they would definitely stick to the negotiated savings and reform course and also implement the planned active measures. However, the NEOS wanted to use the deteriorated budget situation to discuss increased savings and reform efforts within the coalition and quickly bring the states and municipalities on board. "The numbers we are talking about always concern the overall state deficit - that is, the federal, state, and municipal levels," Hoyos emphasized. Therefore, joint efforts must be made to find ways to save within the system and to initiate structural reforms - which would also be required by the EU in a possible deficit procedure.
Budget consolidation is made more difficult by weak economic development. The OeNB has included all the savings measures planned by the government in its deficit estimate. The still weak economy is causing lower growth in tax revenues and increasing expenditures in the labor market budget, the central bank explained on Tuesday. In addition, the tax ratio has increased by 2024 despite many tax cuts. However, this trend is expected to reverse in the coming years. In this context, the OeNB estimates the consolidation volume of the planned savings package for 2025 at only 4 billion euros, while the government had projected a volume of more than 6 billion euros. In 2026, the budget deficit is expected to decrease to 3.3 percent, but the central bank only expects the deficit to be just above the Maastricht limit at 3.1 percent in 2027. The reason: further consolidation measures will take effect in 2026 and 2027, and the economy should recover somewhat.
Consolidation needs for the budget have dramatically increased
In this context, the OeNB estimates the consolidation volume of the planned savings package for 2025 at only 4 billion euros, while the government had projected a volume of more than 6 billion euros. In 2026, the budget deficit is expected to decrease to 3.3 percent, but the central bank only expects the deficit to be just above the Maastricht limit at 3.1 percent in 2027. The reason: further consolidation measures will take effect in 2026 and 2027, and the economy should recover somewhat. As was already announced on Monday, the consolidation needs for the budget have dramatically increased. Previously, it was assumed that around 6.3 billion euros would need to be saved to avoid an EU deficit procedure, but the sum has now almost doubled. Fiscal Council Chairman Badelt estimates an additional consolidation need of four to five billion euros.
On Tuesday, there was different criticism from the opposition. FPÖ Secretary General Christian Hafenecker mainly criticized the ÖVP, which, in his view, should have dealt with the situation much earlier. At a press conference, he warned of a deficit procedure, which would mean "handing over even more competencies to Brussels." Additionally, Austria would face the threat of a worse rating. Green Party leader Werner Kogler, on the other hand, spoke in favor of an EU deficit procedure. "We must not stifle everything that is relevant for the future due to a misunderstanding of the rules," Kogler said at a press conference. He blamed the economic situation and previous governments, which had caused a "criminal" dependency on Russian gas, for the budget figures.
OeNB lowers growth forecast for 2025
The Oesterreichische Nationalbank (OeNB) has significantly revised down its growth forecast for this year and the coming years. For 2025, the National Bank now expects a slight decline in gross domestic product (GDP) by 0.1 percent. In December, it had still anticipated a GDP increase of 0.8 percent. This indicates a third year of recession in Austria. The budget deficit is expected to be 3.8 percent despite the new government's consolidation plans.
The OeNB has also lowered its forecasts for the next two years, 2026 and 2027. For both years, it now expects economic growth of 1.2 percent each, after having assumed an increase of 1.6 percent (2026) and 1.3 percent (2027) in December. With its assessment, the National Bank is currently on the more pessimistic side. According to their estimates from December, the Economic Research Institute (Wifo) and the Institute for Advanced Studies (IHS) still expect an increase of 0.6 and 0.7 percent, respectively. However, on Thursday, the economic researchers will present their current spring forecast.
Reasons for the downward revision of the GDP forecast include new economic data, geopolitical uncertainties, and the new government's consolidation package. The latter has been priced in with all planned measures. The European Central Bank (ECB) already lowered its GDP forecast for the euro area to 0.9 percent at the beginning of March, after an expectation of 1.1 percent in December.
OeNB Chief Holzmann Sees Economic Development Low Point Overcome
Despite the lowered outlook, the OeNB expects the economy to stabilize again this year. "The low point of economic development seems to have been overcome," said OeNB Governor Robert Holzmann according to a release. Inflation has stabilized, falling interest rates are reducing cost pressure on businesses and households, and confidence among industry and consumers is increasing again.
However, growth is only expected from the second half of the year, which is why the forecast for the entire year remains slightly negative. The significantly increased energy inflation at the beginning of 2025 - after the expiration of some government support measures - as well as above-average service inflation are also driving the inflation forecast for the entire year 2025 upwards. An HICP inflation of 2.9 percent is expected for this year. For 2026, a decrease in inflation to 2.3 percent is expected, and in 2027, inflation is expected to be around 2.1 percent. The OeNB sees risks to its growth and inflation assumptions in the tariffs threatened by US President Donald Trump. Meanwhile, the German economic package could have positive growth effects in Austria.
Austria is thus lagging behind the eurozone in terms of inflation expectations. For the eurozone, it is expected that these will move towards the ECB's target of 2 percent this year. The target value is expected to be reached at the beginning of 2026. In the course of this, the ECB has also lowered its key interest rates six times since June 2024. Whether there will be another rate cut at the upcoming meeting in April was left open by OeNB Governor Robert Holzmann.
OeNB Balance Sheet Loss 2024 at 4.2 Billion Euros
The Oesterreichische Nationalbank (OeNB) has once again recorded a multi-billion euro loss in the past year. The bottom line was a balance sheet loss of 4.184 billion euros, with the business result amounting to minus 2.122 billion euros. The OeNB had already had to accept significant losses in previous years. The reason is the different interest rates on assets and liabilities. As a result, the federal government is once again left empty-handed this year and receives no profit distribution.
The "low point in negative business results" has been surpassed, but the monetary policy measures of recent years have "left their mark on the balance sheet and the profit and loss account of the OeNB," said Deputy Governor Edeltraud Stiftinger on Tuesday according to a release. In the course of the many years of ultra-loose monetary policy by the European Central Bank (ECB) and the crises of recent years - especially the coronavirus pandemic and the Ukraine war - the OeNB has numerous securities with very low interest rates on its balance sheet. These bring in little money for the central bank. On the liabilities side, however, the central bank has to pay higher interest rates to commercial banks for their deposits with the central bank due to the increased interest rate level since 2022.
Interest Paid by OeNB Six Times Higher Than Interest Income
"The interest paid by the OeNB to credit institutions in the financial year 2024 was six times the interest income generated from the monetary policy securities purchase programs," Stiftinger continued. The deposits of Austrian banks at the OeNB averaged 87 billion euros last year and were on average remunerated at 3.7 percent. In contrast, there were 107 billion euros in securities that the central bank held for monetary policy purposes in 2024.
The balance sheet total, which had risen sharply due to the previous ultra-loose ECB policy, was slightly reduced again in 2024. At the end of the year, the balance sheet total stood at 237 billion euros, which was 4 percent or 10 billion euros less than the previous year. OeNB Governor Robert Holzmann pointed out that the national bank can continue its business even with a balance sheet loss. "Whether a central bank makes profits or losses is a secondary result of its mandate to ensure price stability in the medium term," said Holzmann. Stiftinger also emphasized at the press conference on Tuesday that the losses were "deliberately accepted" to combat inflation and stabilize prices.
Government goes empty-handed again due to OeNB balance sheet loss
Due to the negative result, there will be no profit distribution for the government for the third consecutive year. However, the OeNB expects that things will improve now. After the end of the ECB's bond purchase programs, many securities are now maturing and will not be reinvested. The balance sheet total should therefore continue to decline. After that, profits are also expected again. However, it is likely to take many years until the bonds are fully matured. "There will be a strong maturation until 2031, by which time they will have decreased by about two-thirds," said Stiftinger. By 2037, the decline should be about 90 percent. The last reduction will not be seen until 2051.
It is also positive for the OeNB that the assets significantly exceed the losses, according to the Vice-Governor. Last year, the value of gold reserves increased by one-third. However, the stock itself has remained unchanged since 2007 and amounts to around 280 tons. The OeNB has no ambitions to sell parts of its gold reserves. That is "by no means our intention, we will never do that," said Stiftinger. Because gold is a major stability anchor and the OeNB is not oriented towards short-term value increases. Last year, the gold reserves accounted for around 64 percent of the OeNB's assets. Another 22 percent came from government bonds and 7 percent each from corporate bonds and stocks.
OeNB advocates enforceable obligation to accept cash
An important task of the OeNB is also to ensure the supply of cash. At the press conference on Tuesday, OeNB Director Eduard Schock advocated for an enforceable obligation to accept cash. 94 percent of the Austrian population still use cash, and the increased rejection of cash payments by retailers and companies endangers the freedom of choice between payment methods. From 2020 to 2024, the percentage of businesses rejecting cash increased from 6 to 9 percent. Against this background, the comprehensive supply of cash via ATMs remains necessary. An agreement between domestic banks and the municipal association was reached over a year ago for this purpose.
Meanwhile, OeNB Director Thomas Steiner sees the banking sector in a resilient condition. Profitability and capitalization are solidly positioned, but credit quality is deteriorating. Especially in Austria, an increase in NPL ratios (non-performing loans/NPL) is observed, whereas the situation is better in the CEE subsidiaries. Challenges for the banking sector and its stability include the political and economic environment as well as cyber risks and digitalization.
(APA/Red)
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