OECD Economic Outlook, Volume 2025 Issue 2

Austria

The economy is projected to recover progressively, growing by 0.3% in 2025, 0.9% in 2026 and 1.2% in 2027. Household consumption will pick up in 2026 and 2027, supported by declining inflation, a resilient labour market and lower savings. Investment will rise, driven by lower interest rates and capital replacement needs. Inflation is expected to approach 2% by end-2027. Ongoing fiscal consolidation will weigh modestly on demand, while slower European activity and further tariff shocks could restrain the recovery.

The budget deficit is set to fall gradually. Targeted public investment, despite a tighter fiscal stance, and reforms to boost business dynamism would enhance resilience. Energy policies to reduce high prices would help restore the competitiveness of energy-intensive industries. Accelerating digitalisation by expanding broadband, easing infrastructure regulations and introducing incentives for innovation would further support medium-term growth. Removing unnecessary or duplicative reporting requirements for firms, streamlining procedures, and full digitalisation of permit applications would further reduce red tape and support business dynamism.

Economic activity is picking up

Economic activity contracted by 0.1% in the second quarter of 2025, following a modest 0.2% increase in the first quarter. Growth in the first half of the year was driven by manufacturing output and services. On the demand side, investment led the recovery. In contrast, household consumption remained weak as savings continued to increase. The labour market has remained resilient despite economic weakness. Unemployment rose from 5.7% in the second quarter to 5.9% in August, while employee compensation is growing at a steady pace. Labour supply is expanding modestly due to population ageing, limiting unemployment increases. Inflation remains elevated, reaching 4.0% in October, driven mainly by higher energy, services, and food prices.

Austria

Source: Eurostat; and OECD Economic Outlook 118 database.

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Austria: Demand, output and prices

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Austria is a very open economy, with around two-thirds of its trade occurring within the European Union, where it is deeply integrated into regional value chains. New US tariffs on EU goods are expected to have a significant impact on Austrian exports. The United States accounts for about 8% of goods exports, but higher tariffs will also affect Austria indirectly through trade with other European partners. Around 21% of Austrian exports are inputs to foreign partners’ exports. High energy prices continue to hinder competitiveness and production. Electricity prices for industrial use remain 40% above their level before Russia’s war of aggression against Ukraine. Although natural gas prices have declined since 2022, they are still elevated. Industrial energy prices have increased more than in most other EU countries.

A gradual fiscal consolidation is under way

Ongoing fiscal consolidation aims to reduce the budget deficit from 4.7% of GDP in 2024 to below 3% by 2028 and bring back debt in a sustainable path. The deficit is projected to narrow to 4.5% in 2025 and 4.4% in 2026. Government revenues are expected to grow strongly in 2025 and 2026, outpacing nominal GDP growth, supported by a stable labour market and a range of revenue raising measures, including energy and banking sector levies, higher dividend taxes and higher health contributions from pensions. Spending will increase, but at a lower pace than GDP due to targeted spending cuts and moderate revenue increases of 1.3% of GDP in 2025 and 1.9% of GDP in 2026, mainly affecting current transfers to households, pensions, environmental and economic subsidies, and ministerial budgets. The consolidation plan beyond 2026 is not yet available and fiscal policy is assumed to be mildly restrictive in 2027.

The recovery is poised to strengthen gradually

Economic activity is projected to grow by 0.3% in 2025, strengthening to 0.9% and 1.2% in 2026 and 2027, respectively. Household consumption is expected to recover gradually as real wages rise and inflation declines, while improved economic prospects should allow households to reduce savings. Lower interest rates and capital replacement needs will support a rebound in private investment from 2026. Trade growth will remain modest due to broader regional conditions but should benefit in 2027 from higher government spending in Germany. Inflation is projected to decline steadily in 2026 and 2027 as the impact of energy support withdrawal fades. Risks are tilted to the downside. Persistently high energy prices could further weaken energy-intensive industries, while additional tariff increases or a more prolonged automotive sector crisis in Germany could undermine growth. Further fiscal consolidation may dampen activity more than expected, weighing on the recovery.

Public finance reforms are needed to ensure long-term sustainability

Beyond ongoing fiscal consolidation, further public finance reforms will be necessary to address rising pressures from population ageing, climate change and defence needs. Bold reforms of the pension system and social benefits are essential to ensure financial sustainability while maintaining the adequacy of the pension level. Boosting business dynamism by accelerating digitalisation through broadband expansion, reducing administrative burdens and lowering energy costs would further support medium-term growth. Reducing regulatory barriers—such as cutting red tape and lowering entry barriers in targeted sectors, particularly professional services—would strengthen competitiveness and boost business investment. Easing land-use regulations and removing other constraints in the housing market would improve supply and stimulate construction investment. Creating a more integrated and competitive energy supply market by having suppliers compete on a national basis instead of in the Länders, with more transparent and comparable contracts, would help lower energy prices and boost competitiveness.