Conclusion of the Monetary Easing Cycle, Subdued Credit Growth, and Bullish Equity Markets

In 2025, the European Central Bank concluded its cycle of interest rate reductions as inflation in the euro area stabilised near the 2 percent target. The yield spread between Austrian government bonds and German bonds narrowed significantly, returning to the pre-Ukraine war level of approximately 0.3 percentage points. Credit volume in Austria expanded at a slower pace than the euro area average, a development primarily driven by weak demand from private households, particularly regarding residential mortgages. Despite the prevailing economic slowdown, asset quality remained robust. While Austria's credit ratings were adjusted downward and interest expenditures increased, the ongoing fiscal consolidation measures indicate an improving outlook. Furthermore, the Austrian equity market outperformed the broader euro area significantly.