OECD Economic Outlook, Volume 2026 Issue 1

Austria

The recovery from the long recession will be held back by high energy prices, with real GDP projected to grow by 0.7% in 2026 and 1.1% in 2027. Government measures limiting the increase in fuel prices will cushion headline inflation, which is projected to reach 2.8% in 2026 before declining to 2.4% in 2027 as commodity price pressures ease. Consumption will slow during 2026, but unemployment is projected to remain broadly stable. Risks are skewed to the downside. A longer than expected disruption to energy markets could slow growth significantly, and the intensification of global and regional geopolitical tensions could further disrupt value chains.

Medium-term fiscal consolidation should be implemented as planned, and energy price measures, while remaining temporary, should be well-targeted. Upgrading the electricity grid to support the use of renewables is essential to reduce energy costs and increase energy security. Easing entry barriers in services sectors, reducing regulatory burdens for businesses and strengthening competition in key markets would boost productivity growth and increase competitiveness.

The economy has been slowly recovering after the long recession

Austria emerged from a two-year recession in 2025 and momentum was positive in early 2026 until the evolving conflict in the Middle East, although conditions for industry remained challenging. Business sentiment, especially in retail and services, was looking up, and tourism recorded a positive winter season. Inflation was slowly decreasing, with the year-on-year headline inflation at 2.3% in February. The unemployment rate has remained broadly stable at around 5.7%. The outbreak of the conflict in the Middle East and the subsequent rise in energy prices and uncertainty are overhauling these dynamics, slowing down the recovery, with inflation rising to 3.4% in April.

Austria

1. Business confidence corresponds to the simple average of Construction, Manufacturing, Retail Trade and Services sectors.

Source: OECD Economic Outlook 119 database; and Eurostat.

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Austria: Demand, output and prices

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Austria is substantially reliant on energy imports, notably of gas, especially in the manufacturing sector. The surge in energy prices is detrimental to industrial competitiveness and demand in key trading partners. Increasing competition from China, US tariffs on merchandise imports and heightened uncertainty also weaken the outlook.

The planned reduction in deficit will continue, but at a slower pace

The government deficit remains above 4% of GDP, despite consolidation efforts that took effect in 2025. The government is expected to continue implementing the medium-term fiscal consolidation as planned, with an overall tightening in the fiscal stance of 0.4% of GDP assumed in the projections between 2025 and 2027. The reduction of the mineral oil tax in 2026 and the weaker-than-expected economic performance will reduce fiscal revenues in 2026, despite higher inflation. The federal deficit is projected to remain high, averaging 4.1% of GDP over 2026-27.

External shocks are hampering the recovery

Real GDP growth is projected to grow by 0.7% in 2026 and 1.1% in 2027. Higher energy prices are expected to depress both domestic and external demand in the second and third quarters of 2026. Heightened uncertainty will negatively impact investment, while public spending growth will be subdued due to budgetary consolidation. As energy prices and geopolitical tensions ease, economic activity is projected to regain momentum. The unemployment rate is projected to remain broadly stable at around 5.7%. Headline inflation is projected to average 2.8% in 2026 due the rise in energy prices, with government measures expected to partially cushion the increase in fuel prices. As commodity price pressures are expected to ease in 2027, inflation is projected to decline to 2.4%. Risks are tilted to the downside. A longer than expected duration of the conflict in the Middle East would add to inflationary pressures and depress further both domestic and external demand. The intensification of global and regional geopolitical tensions could further disrupt value chains, which would be particularly detrimental to Austria, whose foreign value added in exports is among the highest in the OECD.

Increasing the use of renewables would improve energy security and competitiveness

While the medium-term fiscal consolidation should be implemented as planned, Austria also needs a long-term strategy to address fiscal pressures from ageing, climate change and defence. Simplifying the high administrative barriers to build large-scale renewable infrastructure would allow a further expansion of domestic renewables energy production and strengthen energy security, while reducing production costs and emissions. Scaling up renewable electricity also requires upgrading, expanding and digitalising the electricity grid. Developing a more nationally integrated and competitive energy supply market by avoiding fragmentation at the Länder level would increase efficiency and lower energy prices. Reducing the regulatory burden and improving innovation would help encourage business dynamism, while narrowing early retirement schemes and encouraging older workers to stay in the labour force would support growth.