Austria is forecast to face a third consecutive year of economic recession in 2025, according to the latest macroeconomic outlook published by the European Commission. The country’s economic performance continues to be hindered by subdued investment, restrained household consumption, and weakening exports, all set against a backdrop of escalating international trade tensions. Following contractions of 1 percent in 2023 and 1.2 percent in 2024, Austria’s real GDP is expected to decline by a further 0.3 percent in 2025.
The prolonged economic downturn is attributed to multiple structural and cyclical pressures, including the erosion of industrial competitiveness due to elevated energy costs and rising unit labour expenses. In 2024 alone, industrial output dropped by 5.4 percent, while goods exports fell by 5.9 percent. Imports also declined by 7.1 percent, mitigating some of the trade imbalance. Private consumption is anticipated to register slight growth in 2025 after two years of contraction. Real income gains recorded in the previous year, coupled with the gradual release of accumulated household savings, are expected to support spending.
Despite the Austrian government’s planned fiscal consolidation, consumption is likely to benefit from improved purchasing power and easing inflationary pressures. Nevertheless, investment is forecast to weaken further, particularly in the industrial sector, where low capacity utilisation continues to suppress equipment spending. In contrast, a modest recovery in construction investment is projected, aided by marginal declines in housing loan interest rates. However, these improvements are not expected to offset the wider economic challenges.
The industrial sector’s loss of cost competitiveness remains a significant constraint, particularly as similar weaknesses persist across the broader European manufacturing landscape. Exports to the United States, Austria’s second-largest export market, had shown robust growth in 2024, accounting for 8.5 percent of total exports. However, increasing trade frictions are expected to limit further gains, posing additional risks to export performance in the year ahead. Fiscal indicators remain under pressure, with the government deficit projected to exceed 4 percent of GDP in both 2025 and 2026.
The debt-to-GDP ratio is expected to stay above 80 percent during the forecast period, reflecting ongoing fiscal strain amid limited revenue growth and elevated spending requirements. Looking ahead, the European Commission anticipates a return to positive growth in 2026, with GDP projected to expand by 1 percent. This recovery will likely be driven by strengthening domestic demand and a moderate rebound in investment. However, persistent trade uncertainties are expected to continue weighing on Austria’s overall economic momentum. – By MENA Newswire News Desk.