Austria

Austria boasted a solid growth track record in the decade leading up to the Covid-19 shock, recording average annual GDP growth of +1.5% - slightly above the +1.4% for the Eurozone as a whole. In 2020, Austria GDP contracted by -6.5% despite the initial resilience of its industrial sector as services – notably the important tourism sector – were hit hard by Covid-related business closures and international travel restrictions. While the recovery in 2021 proved relatively swift, benefiting from the revival in global trade, it was interrupted by the Omicron wave, with Austria being one of the first Eurozone countries to tighten containment measures and to raise the issue of compulsory vaccination to get a grip on the pandemic. In 2022, Austria saw an upswing in annual GDP growth of nearly +5% due to easing supply-chain pressures and strong underpinnings of private consumption including a solid labor market and elevated household savings despite the elevated energy prices following the war in Ukraine. Financial tightening, weak global demand and high inflationary pressures dampened private consumption and uncertainty weighed on investments. This led the Austrian economy into recession in 2023, with a GDP contraction of -0.7% and an ambiguous development where manufacturing was in recession, but services were still holding up.

In 2024, real GDP is expected to stagnate - with significant downside risks pointing toward a prolonged recession that could last two calendar years. Austria is grappling with a decline in investment and weak demand for capital goods and machinery. Exports to Germany, Austria's most vital trade partner, have seen a notable drop this year, reflecting a longer-term trend. However, falling interest rates may soon improve financing conditions. Looking ahead to 2025, foreign demand is anticipated to recover slightly, providing some economic stimulus that could also boost private consumer spending. Nevertheless, overall growth will remain modest at +1%. Investment in equipment is likely to continue its downward trajectory due to deteriorating corporate earnings amid rising wages and commodity prices. Business insolvencies increased massively compared to pre-pandemic levels. In 2024 we expect an increase by +20%, reaching peak levels, followed by an -8% drop year-on-year in 2025.

The cyclical downturn in economic prospects has led to unfavorable developments in the labor market. In 2023, unemployment increased to 6.4% as the weak economic activity coincided with an expansion in the labor force. In 2024 and 2025, the unemployment rate will continue to rise as a result of a potential recession. Although wage growth has surged sharply, helping to offset purchasing-power losses due to higher inflation, it took longer for wages to rebound from the impact of rising prices. While current wage growth in Austria remains robust, it has now passed its peak. Consumers continue to feel the pinch and this combined with escalating housing costs signal broader economic issues, leading to decreased consumer confidence and increased political dissatisfaction.

The Austrian business environment proves very strong: the country scores very well in regulatory quality, rule of law and control of corruption. In addition to its strategic location in Europe and high-quality infrastructure, Austria offers a skilled workforce and robust legal framework.

In the 2024 elections, the FPÖ won over many Austrian voters with its anti-migrant and pro-Russia stance. It retained 76% of its 2019 voters and gained 25% from former ÖVP supporters – the largest voter shift in Austria's history. Additionally, it mobilized over 250,000 non-voters and captured 40% of those dissatisfied with the ÖVP-Greens coalition. However, ÖVP and SPÖ reject a coalition with FPÖ. In order to resolve this stalemate, the ÖVP was tasked with forming a government. Austria will face general elections again in 2029