Structural Problems are Holding Back Economic Growth, Whilst Interest Payments are Hampering Fiscal Consolidation

Austria's economy is recovering slowly from the recession of 2023-24. WIFO forecasts average annual GDP growth of 1.2 percent for 2026-2031 (Ø 2010-2019 +1.6 percent) and trend growth of 1.0 percent p.a. Compared with other euro area countries, Austria's economy is expected to grow more slowly in the medium term. Demographic change is reducing the labour supply. Whilst this clouds the medium-term outlook on the one hand, it also significantly reduces unemployment: the unemployment rate is forecast to fall to 5.8 percent by 2031 (2026: 7.6 percent). Due to the sharp rise in prices for mineral oil products and natural gas caused by the war in Iran, the inflation rate is projected to reach 3.3 percent in 2026 and 2.6 percent in 2027. The inflation target of 2 percent is not expected to be met until the second half of 2029. Over the forecast period, net borrowing is projected average 4.1 percent of nominal GDP, well above the Maastricht threshold of 3 percent, causing public debt to reach 89 percent of nominal GDP by 2031 (2025: 80.7 percent). In order to bring net borrowing below the 3 percent mark and ensure the closure of the EU excessive deficit procedure, further measures of at least 1 percent of nominal GDP would therefore be required, in addition to the consolidation measures already agreed in the 2027-28 biennial budget.