Austria: 2025 Article IV Consultation-Press Release; and Staff Report

The Article IV Consultation discusses that Austria has experienced two successive years of recession under weak domestic and external demand, triggered by the energy price shock and subsequent euro area monetary tightening. Despite weak demand and some easing in labor market conditions, inflation at around 3 percent year-on-year still exceeds inflation in the euro area by about 1 percentage point, with sticky services inflation and the lapsing of energy price relief policies causing headline inflation to rise. The fiscal deficit widened to 4.7 percent of gross domestic product (GDP) in 2024 due to the weak economy, lagged effects of inflation, and one-off expenditures, among other factors, resulting in an increase in public debt to 81 percent of GDP. The growth outlook continues to remain weak for 2025, reflecting planned fiscal consolidation and heightened global trade barriers and trade policy uncertainty. A return to growth is expected from 2026 onwards, though the medium-term growth and fiscal outlook faces significant headwinds from demographic aging and sluggish productivity growth. The outlook is subject to risks in both directions. Downside risks to growth predominate, including from increased global trade policy uncertainty and protracted weak sentiment. Upside risks include a faster-than-expected rebound in private demand or easing of global trade tensions.