OECD Economic Surveys: Austria 2026

Executive summary

Key messages

Austria enjoys high living standards, supported by strong institutions and a well-educated workforce. However, following the energy price shocks triggered by Russia’s war of aggression against Ukraine, a prolonged recession disrupted the post-pandemic recovery. A substantial fiscal deficit has emerged, even as growth begins to recover. Ambitious fiscal and structural reforms are needed to boost business dynamism, raise productivity, improve housing affordability, and address population ageing and climate and energy transition challenges.

• The budget deficit should be reduced steadily as planned, supported by bolder fiscal reforms to contain spending growth, enhance tax efficiency and create space to meet long-term ageing and climate-related costs.

• Business dynamism has declined over the past decade and competitiveness has been eroded by high energy prices and rising labour costs. Policy priorities include improving innovation outcomes, accelerating digitalisation, securing critical inputs and fostering competition in key markets.

• While Austria’s housing model has delivered good outcomes, affordability in major cities has become more challenging. Better targeting housing in the limited profit sector, revising property taxation, streamlining building permits and improve land-use would help restore affordability.

• The population is ageing and the labour force will decline. Improving access to affordable childcare, tightening access to early retirement and increase employability of older workers would help increase employment among women and the elderly. Strengthening primary care, advancing the digitalisation of the health system and better targeting the long-term care allowance will sustain the financial and operational sustainability of the health and long-term care systems.

After a prolonged recession, the Austrian economy is recovering

Austria has high levels of well-being, but has experienced recently its longest recession since 1945. The economy is now recovering, but long-standing challenges remain of slow productivity growth, declining business dynamism, rising housing costs and ageing pressures.

Austria enjoys high per capita income, underpinned by strong macroeconomic fundamentals, solid institutions, a large industrial base, and a dynamic services sector. Deep integration into EU industrial value chains, a sophisticated production structure, and a well-educated workforce are key strengths.

Following a strong post-pandemic rebound, the economy slowed sharply in 2023–24 (Figure 1), leading to a prolonged recession and a substantial fiscal deficit. Output declined across most sectors—industry, manufacturing, retail, and services—while construction slumped. Domestic demand remained subdued. High inflation in 2022–23 eroded real wages and consumption, but in 2024 easing inflation and strong nominal wage growth lifted real incomes. However, much of this income gain was saved, keeping consumption moderate. Investment remained weak, particularly in housing and commercial real estate. The labour market proved resilient, mainly in the public and related sectors, and the services sector. The financial system appears sound, although non-performing loans have increased in the real estate sector. Making permanent borrowed-based macroprudential measures would help manage risk. Industrial competitiveness has weakened due to rising energy costs and rapid wage growth following the inflation surge.

Implementing a comprehensive package of policies to improve energy and price competitiveness, productivity, strategic sourcing of inputs and R&D and innovation, including through aligning sectoral strategies, would help raise the performance of the Austrian economy. High energy intensity and costs continue to undermine industrial competitiveness. Upgrading and expanding the electricity grid with prioritised investment would facilitate greater use of renewable energy, while raising diesel and fuel taxes could support the switch to cleaner modes of transport. In addition, strengthening higher education performance would enable better utilisation of the existing workforce and enhance labour productivity.

A gradual recovery is projected, with GDP growth of 1.1% in 2026 and 1.3% in 2027 (Table 1). Household consumption will be supported by rising incomes, easing inflation, and stable employment. Improving financial conditions as inflation and interest rates decline will bolster investment, while exports will strengthen with the recovery in Germany.

Risks stem from global uncertainties. Geopolitical tensions could disrupt European value chains, while rising competition from China—especially in the automotive sector—and renewed energy price increases could undermine competitiveness and reignite inflationary pressures.

Table 1. Growth is projected to recover

Annual growth rates, %, unless specified

Annual % change unless specified	2023	2024	Projections
			2025	2026	2027
Gross domestic product (GDP)	-0.7	-0.8	0.6	1.1	1.3
Consumer price index	7.7	2.9	3.6	2.5	2.2
Core consumer price index	7.3	3.9	3.1	2.6	2.2
Unemployment rate (% of the labour force)	5.1	5.2	5.5	5.4	5.4
General government fiscal balance (% of GDP)	-2.6	-4.7	-4.5	-4.2	-4.0

Source: OECD, Economic Outlook database.

Figure 1. Austria has gone through a prolonged recession

Real GDP growth, 2015Q1=100

Note: The EU aggregate corresponds to the composition of European Union as of 2020. The OECD aggregate corresponds to the simple average of the OECD countries.

Source: OECD.

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Fiscal consolidation needs to advance, but without undermining growth

The general government budget deficit widened in 2024, triggering a fiscal consolidation plan designed to bring back the deficit below the 3% EU rule by 2028 and reduce the debt burden over time. The planned steady fiscal adjustment should be implemented, and additional fiscal reforms initiated to contain spending increases and create fiscal space to cope with mounting spending pressures from ageing and climate-related expenditures.

The general government deficit widened to 4.7% of GDP in 2024. Fiscal consolidation began in 2025 and aims to bring the deficit below 3% of GDP by 2028. While fiscal support helped cushion the economy during a period of weak private demand, a sustained adjustment is now essential to stabilise the debt ratio. The government should proceed with its planned gradual medium-run consolidation plan to 2031. Developing a long-term fiscal strategy focusing on reducing social spending, improving spending efficiency and enhancing the fairness and effectiveness of the tax system, would help with the implementation of the government’s consolidation plan.

Austria carries a relatively high public debt burden and faces mounting long-term fiscal pressures. Over the medium to long term, rising costs from population ageing, the green transition, and the maintenance of Austria’s comprehensive welfare system will intensify budgetary strains. Pension, health, and long-term care expenditures are already substantial, and ageing will further increase spending while eroding the tax base. Additional investment will also be needed to support the mitigation of and adaptation to climate change, while the shift to electric vehicles will reduce fuel-related tax revenues in the absence of reform. Developing a long-term fiscal strategy for spending and taxation would help to prepare for these pressures on public finances.

Efficiency gains can create fiscal space. Savings could come from better targeting and managing social transfers, and enhancing the efficiency of public procurement and outsourcing. There is room to making family benefits more progressive by phasing out transfers to higher income people. The expected retirement of large cohorts of civil servants provides an opportunity to reorganise and further digitalise the public administration. Regular spending reviews and stronger evaluation mechanisms would improve prioritisation. Reforming the fiscal equalisation framework—currently based largely on population rather than needs or performance—would strengthen incentives for cost efficiency and innovation.

A more growth-friendly tax structure would support medium-term consolidation and long-term sustainability. Austria’s tax system remains heavily dependent on labour income, while underutilising more efficient tax bases such as property and inheritance. Austria does not levy inheritance or gift taxes, except for real estate transfer duties. Rebalancing the tax system away from labour, in particular for low-income people, by lowering social security contributions and personal income tax, alongside raising more revenues, including from property taxes, VAT and a well-designed inheritance and gift tax could enhance both equity and efficiency while safeguarding fiscal sustainability.

Boosting business dynamism would help build economic resilience

Austria’s business dynamism has been in decline for many years. Rising labour and energy costs have eroded firms’ price competitiveness, while deeper structural weaknesses persist. Reviving productivity requires easing regulation, accelerating digitalisation, strengthening competition in key markets, and reducing occupational licensing requirements. Innovation must translate more effectively into market products.

While firm entry and exit rates have been fairly stable in manufacturing, they have fallen significantly in services—the largest sector of the economy. Post-entry employment growth among new firms is low. Medium to long-run challenges related to energy vulnerabilities, higher competition from new contenders, innovation and digitalisation gaps, and trade risks will require a faster pace of reallocation between firms and sectors than in the past.

As a small open economy with few natural resources, the Austrian economy is dependent on imported fossil fuels for energy and on specialised imported intermediate goods. As global trade restrictions are growing, securing the sourcing of key inputs for industry and the economy is crucial.

Austria benefits from a strong innovation ecosystem and high R&D and innovation spending. Austria ranks highly in design and patent applications, but the transformation of these outputs into new-to-market and new-to-firm innovations is among the lowest in the EU. Policies that help mitigate the risks associated with developing and introducing new products—particularly through financial incentives—have a crucial role to play.

Digitalisation of the economy and of businesses is limited by a low coverage of high-speed broadband and shortages in advanced digital skills. Fully implementing and expanding access to digital programmes will strengthen Austria’s foundation for a digital society and help workers stay resilient in the face of digital disruption.

Market concentration remains high across many sectors. Austria maintains somewhat high barriers to entry and burdensome administrative requirements. Easing entry requirements can boost productivity in professional services and in sectors that depend on them. Strict oversight and cooperation between the Competition Authority and sector regulators would help uphold fair competition.

Restoring the affordability and improving the functioning of the housing market

Price-to-income ratios and rents have risen sharply over the past two decades, mainly driven by the for-profit segment in large cities. Reassessing regularly the financial situation of tenants in limited-profit housing and increasing rents for those who no longer satisfy the eligibility criteria would support limited-profit housing supply. Revising property taxation would improve market efficiency. Streamlining and digitalising building permits and improving land use through better coordination would enhance supply efficiency.

Austria’s housing model has long provided affordable and excellent quality homes, with rented and limited-profit housing playing a major role, especially in cities. However, price-to-income ratios and rents have risen sharply over the last 20 years (Figure 2).

Austria has relied heavily on social housing, mostly delivered through the limited-profit sector. Recent rises in construction and land costs, together with the reduction in public expenditure on social housing, contributed to reduce limited-profit share of total supply. Increasing rents for limited-profit tenants who no longer satisfy the eligibility criteria, targeting the social housing stock to those more in need without loosing social diversity and extending indexation to prices for the whole rent for limited-profit tenants, compensating low earners with housing allowances, would help limited-profit housing supply to keep pace with rising demand and favour its price-dampening effect.

Austria imposes one of the lowest rates of recurrent immovable property tax within the OECD, and the tax base does not reflect the current market value of properties. Transitioning the tax base calculation from outdated cadastral values to contemporary market valuations would improve fairness and effectiveness. The introduction of recurrent taxes on vacant dwellings and the revision of the current very low taxation on unused constructable land would mobilise and stimulate supply.

Complex land use decision processes and building permit procedures constrain housing supply and drive-up costs. Strengthening the monitoring and enforcement powers of the Austrian Conference on Spatial Planning (ÖROK) would improve land planning efficiency. Expanding and improving public transport networks and infrastructure and increasing density in peri-urban areas proximate to transport infrastructure would contribute to lower price pressures in urban centres. Digitalising the entire permitting process, streamlining it by consolidating legislation, requirements and administrative steps at the federal level, introducing clear national statutory deadlines for building permits and implementing tacit approval mechanisms for simpler, lower-risk projects would enhance supply responsiveness.

The direct emissions and energy intensity of Austria’s residential sector are above the OECD averages. Consolidating all financial incentives to avoid dispersion and duplication, and creating a digital, clear, user-friendly one-stop shop for applicants would foster the demand for residential building renovation. Expanding construction industry capacity would assure supply can meet the rising demand.

Figure 2. Housing affordability has deteriorated

Rent, Index, 2015 = 100

Note: Data are seasonally but not calendar adjusted. The Euro area aggregate corresponds to the OECD countries of the euro area. The OECD aggregate corresponds to the simple average of the OECD countries. Both averages only refer to countries with data for both periods.

Source: OECD Analytical house prices indicators (database).

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Addressing demographic challenges requires a bold set of reforms

Population ageing is shrinking the labour force while driving up social spending. Raising employment among women and older workers would help ease labour shortages. Linking the statutory retirement age to life expectancy gains and tightening access to early retirement would strengthen pension sustainability. Improving primary care, advancing health system digitalisation, and better targeting long-term care (LTC) allowances, alongside expanding the LTC workforce, would enhance both financial sustainability and service capacity.

Austria’s population is ageing rapidly, with fewer prime-age workers and a growing share of older people and retirees. This trend, driven by declining fertility and rising life expectancy, poses risks to economic growth, productivity, and the long-term sustainability of the pension, health, and long-term care systems (Figure 3).

Ageing will reduce the working-age population and intensify labour shortages, while labour market participation and employment, particularly among women and older workers, remain below many OECD peers. Encouraging wage structures that reflect productivity, performances and tasks rather than seniority, tightening access to early retirement, and better targeting old-age subsidised part-time and partial retirement schemes would help extend working lives. Expanding affordable childcare, promoting shared parental leave, and phasing out single-earner tax credits would reduce barriers and disincentives to female labour force participation.

Pension spending, already among the highest in the OECD, is projected to rise further until 2035. Linking the statutory retirement age to life expectancy gains, slightly lowering accrual rates, and reforming the indexation of pensions to inflation by setting a rule to differentiate adjustments between low and high pensions would strengthen the long-term sustainability and fairness of the system.

Austria’s public health spending is among the highest in the OECD, yet system efficiency remains below potential. Fully and rapidly implementing recent reforms and further streamlining the structure and coordination of the health system would strengthen both efficiency and sustainability. Expanding and enhancing primary care, particularly by further deploying multidisciplinary primary health care units and improving the attractiveness of general practice, especially in rural areas, would help reduce the heavy reliance on hospitals. Removing legal and technical barriers to health data interoperability would enable better governance, research, and prevention. Allowing pharmacists to substitute branded drugs with generics without prior physician approval and capping reimbursement at the least expensive generic’s price would lower high outpatient pharmaceutical costs.

The ratio of formal long-term care (LTC) workers to people aged 65 and over is below the OECD average, while ageing will continue to drive up demand. Improving LTC working conditions, attracting more male workers, and better targeting the LTC allowance would help secure workforce supply, sustain service quality, and preserve financial sustainability.

Figure 3. Ageing will impact public finances

Gross expenditure as % of GDP, 2050

Note: The EU aggregate corresponds to the composition of European Union as of 2020.

Source: European Commission (2024) Working Group on Ageing Populations and Sustainability (AWG).

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MAIN FINDINGS	KEY RECOMMENDATIONS
Addressing key risks to macroeconomic stability and boosting potential growth
GDP growth is projected to strengthen gradually. Ongoing fiscal consolidation plan will continue until 2031 at a steady pace in line with fiscal rules. But public debt will remain high and fiscal pressures from ageing and climate change are building.	Implement the planned multi-year fiscal adjustment plan to reduce the fiscal deficit and put the debt ratio on a downward path. Establish a long-term fiscal reform strategy to create fiscal space to manage spending pressures.
The financial sector has been resilient to past shocks, but there are risks from commercial real estate and higher non-performing loans.	Make permanent borrower-based macroprudential measures.
The labour tax wedge is among the highest in the OECD.	Rebalance the tax system away from labour and increase other revenues by lowering social security contributions and personal income tax, alongside revenue raising measures including property taxation.
High energy prices continue to hinder competitiveness and production. Continued reliance on oil and gas undermines both climate goals and energy security, leaving Austria off track for its emission reduction targets.	Upgrade and expand the electricity grid by setting clear investment priorities, reforming financing regulations and digitalising the grid. Align diesel and gasoline taxes and raise fuel taxes to match neighbouring countries.
A growing minority of young people are not in education, employment, or training (NEET). Tertiary completion rates remain low by international standards.	Further tighten the link between higher education institution’s funding and performance to strengthen accountability and student success.
Building economic resilience through business dynamism
Austria ranks highly in design and patent applications but the transformation of these outputs into new-to-market and new-to-firm innovations is among the lowest in the EU.	Implement a comprehensive package of policies to improve energy and price competitiveness, productivity, strategic sourcing of inputs and R&D and innovation.
Austria’s overall PMR score sits above the OECD average. Barriers to entry in services are among the highest in the OECD.	Broaden qualification pathways and reduce experience requirements to professional services.
Market concentration remains high across many sectors. Competition in energy market is low and fragmented at the länders level.	Develop a more nationally integrated and competitive energy supply market by inducing more competitors in markets.
Restoring the affordability and improving the functioning of the housing market
Eligibility for non-market rentals is currently only assessed at the time the rental contract is signed, not considering any income improvements during the tenancy.	Regularly reassess the financial situation of tenants of limited-profit housing, and increase rents for those who no longer satisfy the eligibility criteria.
Average purchase prices for constructable land have increased substantially. Austria ranks high among OECD countries for vacant dwellings and seasonal residences as shares of total housing stock.	Revise and increase the recurrent taxation on unused land and introduce recurrent taxes on dwellings that remain unoccupied in high-cost pressure areas.
Vienna and other big cities face strong housing demand while many rural and peri-urban areas face population stagnation or decline.	Expand and improve public transport networks and infrastructure to better connect rural and peri-urban areas with urban centres.
Austria’s building stock is old and is characterized by high energy intensity and direct emissions. Renovation rates progress slowly despite incentives.	Consolidate all incentives for home energy efficiency to avoid dispersion and duplication.
Addressing demographic challenges requires a bold set of reforms
Austria has a low, although gradually rising, average effective age of labour market exit.	Tighten the access to early retirement schemes and make sure the old-age subsidised part-time scheme (Altersteilzeit) closely targets those at risk of early labour market exit.
Women often take a high share of childcare responsibilities, switching to part-time work when their children are young.	Extend the leave that fathers need to take within the overall parental leave period. Gradually phase out the single-earner tax credit to reduce tax-induced distortions in work incentives.
Public pension expenditure as a share of GDP in Austria is one of the highest in the OECD and will rise further up to 2035.	Ensure the long-term sustainability of the pensions system, for example by linking the retirement age to life expectancy gains.
Efficiency of Austria’s health system remains hampered by its structural and financial fragmentation.	Implement recent reforms and continue to optimise and harmonise the functioning and the governance of the health system.
The health system is currently too reliant on expensive inpatient care and primary care does not exercise a formal gate-keeping function.	Strengthen further primary health care to reduce high reliance on hospitals, particularly through further deploying multidisciplinary primary health care units.
Expenditure on outpatient pharmaceutical products accounts for more than 15% of total health spending and the share of generic medicine prescribed is substantially lower than in other OECD countries.	Enable pharmacists to substitute branded drugs with generics without requiring prior physician approval and set the maximum reimbursement level at the price of the least expensive generic medicine.