Geopolitical Uncertainty Weighs on Economic Activity

"In both Germany and Austria, business surveys in the manufacturing sector have been showing signs of improvement since the beginning of 2025. However, the recovery in this cyclically sensitive sector is very sluggish," says Marcus Scheiblecker, author of the latest WIFO business cycle report.

The Austrian economy is failing to gain momentum. The hoped-for recovery in industrial activity has not yet materialised. The results of the WIFO-Konjunkturtest (business cycle survey) from February 2026 underscore the continuing gloomy mood among companies. Industry is suffering from persistently weak foreign demand for capital goods. Negative assessments also predominate in the construction sector.

In the euro area, the sluggish growth continued in the fourth quarter of 2025 (real GDP +0.2 percent compared to the previous quarter). Not only lackluster domestic demand but also the noticeable decline in demand from the USA had a negative impact. In addition, the pronounced geopolitical uncertainty, which has increased once again with the outbreak of the Iran war, is reducing the willingness to invest. The rise in the price of fossil fuels rekindled cost pressure additionally. Both factors reduce the likelihood of a more dynamic economic recovery in Austria and the euro area.

The blockade of the Strait of Hormuz caused the price of crude oil to rise by more than 15 percent within a few days, returning it to the level seen in mid-2024. The price of natural gas also rose significantly. On 4 March, the Dutch TTFI price index was already around 60 percent above the low level seen at the beginning of 2026, but still well below the previous year's level.

In Austria, economic output stagnated in the fourth quarter of 2025. Export demand did not increase and was disappointing, as was consumer demand from private households, which rose by only 0.2 percent after falling by 0.6 percent in the third quarter. In addition to exports, hesitant investment demand in particular dampened GDP at the end of the year. After significant increases in previous quarters, it declined by over 2 percent. This was due to weak demand for construction, vehicles and machinery.

The inflation rate rose slightly in February to an estimated 2.2 percent (according to a flash estimate), after almost halving in the previous month (January 2026: 2.0 percent). Energy is likely to become more expensive again as a result of price increases for crude oil and natural gas, which is prone to rekindle inflation.

The difficult economic situation caused employment to decline in February compared with the previous month, while unemployment rose. At 8.3 percent, the unemployment rate (national definition) was 0.2 percentage points higher than in the previous year. The number of job vacancies continued to decline.