No Prospects of Economic Recovery Yet

"Global industrial production and global trade have been following an upward trend since mid-2023. Import tariffs announced by the USA and any counter-reactions by affected trading partners are jeopardising this positive momentum," says Marcus Scheiblecker, author of the latest WIFO Business Cycle Report.

Following declines in the second and third quarters of 2024, Austria's economic output has stagnated in the fourth quarter according to the WIFO Flash Estimate. While consumer and investment demand were somewhat brisker than in the previous period, exports continued to decline. Industry also recorded production losses in the fourth quarter.

The expectations of industrial companies do not point to an imminent economic recovery either in the EU as a whole or in Austria. The mood also remains subdued due to the USA's tariff threats. The only rays of hope are the gradual easing of monetary policy in the euro area and the weakness of the euro against the dollar, which should support the export economy.

The business cycle in the USA has been buoyant so far. However, an increase in import tariffs is likely to increase consumer price inflation and thus ought to dampen private consumption, which has driven the growth of real GDP in the USA to date. In addition, the Federal Reserve Bank is unlikely to cut interest rates again in the event of an increase in inflation, having already stopped easing its monetary policy in January.

The euro area economy recently suffered a setback; GDP stagnated in the fourth quarter of 2024 compared to the previous period, having grown by 0.4 percent in the previous quarter. A rapid acceleration of the business cycle is unlikely given the weak leading indicators.

The inflation rate in Austria rebounded at the beginning of 2025 to an expected 3.3 percent. While at the end of 2024, values of less than 2 percent were measured.

The labour market is increasingly suffering from the ongoing economic downturn. The number of unemployed people registered with the Public Employment Service recently rose as compared to the previous year as well as to the previous month. At the same time, the number of job vacancies fell. According to preliminary calculations, the unemployment rate in January 2025 was 8.6 percent.