Poor Prospects for Austria's Economy: Budget Deficit Climbs Over Four Percent by 2025

The Austrian National Bank is now more pessimistic about the domestic economy than it was in September. It expects a second consecutive decline in economic performance this year and has lowered the forecast to minus 0.9 percent. For 2025, the currency custodians only expect 0.8 percent growth. Three months ago, the expectations for both years had been 0.2 percentage points better. The OeNB expects an increase in the unemployment rate to 7.0 this year and 7.4 percent in 2025.

OeNB Forecast: Growth Prospects for 2024 and 2025 Lowered

Inflation should continue to decline, but the OeNB expects that the European Central Bank's (ECB) target of two percent inflation will not be reached until 2027. The deficit will rise to 4.1 percent next year, significantly missing the Maastricht target of three percent. This year too, the deficit will be above the Maastricht limit at 3.7 percent. Both values are noticeably worse than in the OeNB forecast from June.

"The weak economy, the structural change in the European automotive industry, and the high energy and wage costs are putting a lot of pressure on the Austrian industry and led to a decline in exports in 2024," writes the OeNB. Private consumption also remains weak, there are "currently no signals for an imminent upswing". Therefore, the OeNB only expects significant growth of 1.6 percent in 2026, which is likely to weaken again to 1.3 percent in 2027.

Numerous Risks for the Economy

If the new government reduces the deficit, it would bring "a significant downside risk" for the domestic economy. This could reduce growth in the years 2025 to 2027 by 0.3 to 0.4 percentage points annually. The tariffs announced by the designated US President Donald Trump could also reduce growth in 2025 by a further 0.2 percentage points. The economy could benefit if people save less. The risks for an increase in inflation are numerous: They range from geopolitical tensions to a trade war to a stronger recovery in domestic demand.

Budget Deficit Rises to 4.1 Percent Next Year

The Austrian National Bank is now significantly more pessimistic about the budget deficit than it was in June. For the current year, the currency guardians expect a new debt of 3.7 percent, instead of the 3.1 percent predicted then. By 2025, the deficit is expected to rise to 4.1 percent of economic output. This means that the Austrian National Bank anticipates a higher new debt than Wifo and IHS in their most recent forecast in October. This would require a consolidation need of 7.1 billion euros in 2025 to achieve the Maastricht target of 3.0 percent, said Birgit Niessner, Director of the Economic Department of the Austrian National Bank on Friday.

The 7.1 billion euros correspond to 1.4 percent of GDP. This amount should be seen as a "compass for the need to save" and "hopefully and probably will not be realized as such". The "effective need" will depend on the political decisions of the next government and the European Commission. In the event of a deficit procedure by the EU Commission, "the need for consolidation would be a gentler one," said Niessner, even though there is a risk to reputation.

The Austrian National Bank also expects a new debt significantly above the Maastricht limit of 3.0 percent required by the EU, with a deficit of 3.6 percent each for 2026 and 2027.

The deterioration of the deficit in 2025 is "primarily due to the delayed adjustment of pensions and public salaries to inflation and the poor macroeconomic environment," according to a statement by the National Bank. However, a reduction in the deficit would also carry a "significant downside risk" for the domestic economy.

FPÖ Fears Anti-Business Course

"The catastrophic economic policy of the black-green coalition over the past five years has finally destroyed Austria's economy and our prosperity," FPÖ economic spokesman Axel Kassegger interpreted the forecast in a press release. With a government made up of ÖVP, SPÖ and NEOS, this "left-wing anti-citizen and anti-business course" will continue, inflation will be stoked again, and Austria's economic location will be further weakened.

(APA/Red)

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