Energy Prices Only Briefly Slow Down Austria's Economy

"Futures markets currently expect energy prices to decline faster than we assumed in the latest WIFO forecast. A steeper decline would lead to a faster economic recovery," said Stefan Ederer, the author of the current WIFO Economic Outlook.

The Austrian economy showed a steady upward trend in 2025. According to National Accounts data published in early June, the recovery began in the fourth quarter of 2024 and continued into the first quarter of 2026. This makes the starting position for the current year more favourable than assumed in the WIFO Economic Outlook of April 2026.

The war in Iran and the associated rise in crude oil and natural gas prices are holding back the economy. Consumer price inflation rose significantly in the spring, and sentiment among households and companies has deteriorated. In the manufacturing sector, however, the assessment of the current situation remains significantly more favourable than a year ago. With the gradual normalisation of global production and transport volumes of crude oil and natural gas from the second half of 2026 onwards, and the corresponding fall in energy prices, economic activity is expected to regain momentum. Overall, the Austrian economy is set to grow by about 1 percent per year over the forecast period.

Austria's industry and export economy are expected to participate in the global economic upturn again over the forecast horizon. In the construction sector, however, no strong growth is anticipated.

Consumer prices are likely to rise more rapidly in 2026 than expected in the latest WIFO Economic Outlook. On the one hand, petrol prices in Austria have reacted more quickly to the global rise in crude oil prices. On the other hand, WIFO expects the fuel price cap to expire at the end of June. Next year, consumer prices for district heating, gas and electricity will rise with a time lag; however, the decline in mineral oil prices will outweigh this and dampen inflation. Overall, consumer price inflation will stand at 3.2 percent in 2026 and fall to 2.4 percent in 2027.

Modest wage settlements from the previous year and high inflation are dampening purchasing power in the current year, causing real household incomes to shrink once again. Consequently, consumer spending and value added in consumption-related service sectors will increase only moderately over the forecast period.

Employment is expected to expand only moderately in the current year. As a result, the unemployment rate will initially rise further to an annual average of 7.5 percent in 2026. In 2027, the increase in employment will be stronger, causing the unemployment rate to fall slightly for the first time to 7.3 percent.

General government fiscal balance is expected to improve slightly further over the forecast period. It is projected to stand at –4 percent of GDP in 2026 and –3.7 percent in 2027. The public debt-to-GDP ratio will rise to nearly 84 percent by 2027.