Austria’s economy is expected to grow by an average of 1.3% annually from 2025 to 2029, falling 0.2 percentage points short of the Eurozone average, according to the latest mid-term forecast from the Austrian Institute of Economic Research (Wifo). Growth in Austria is being hindered by competitive disadvantages, and the national budget deficit is projected to remain above the Maastricht limit of 3% without government intervention.
In light of weak economic growth and a worsening budget balance, Wifo Director Gabriel Felbermayr stressed the urgent need for action, urging the future government to implement a “growth-oriented reform agenda” and a “credible budget consolidation path.” Felbermayr emphasized that Austria must look to domestic consumption rather than exports to support economic activity.
Rising Energy Costs and Structural Issues Impact Growth Prospects
According to Wifo, Austria’s lower growth rate compared to the Eurozone is primarily due to a decline in international competitiveness, driven by higher wage increases and elevated energy costs. Structural issues such as difficulties in migrant integration, low workforce participation (especially among the elderly and women), and challenges within the education system are also expected to hamper growth in the medium to long term.
The forecast, presented on Thursday, highlights risks that may further impact growth, including geopolitical instability and potential economic policies under the new Trump administration, which could disrupt global trade and add uncertainty to Austria’s export market. Additionally, concerns about sustaining domestic consumption are heightened by what Felbermayr called “pervasive pessimism.” Other risks include instability due to the Middle East conflict and an escalation of the Ukraine crisis, according to Wifo economist Josef Baumgartner.
While the FPÖ criticized the economic approach of the current Austrian government, the Austrian Chamber of Commerce and NEOS party echoed the call for swift action to improve Austria’s competitiveness and for a sustainable reform agenda. Felbermayr also recommended that the EU engage in dialogue with Trump to mitigate potential trade conflicts.
On a positive note, consumer price inflation is expected to continue decreasing, potentially reaching the European Central Bank’s target of 2% by mid-2025. Wifo also forecasts a significant reduction in unemployment, with rates expected to fall from 7.2% to 5.7% over the five-year period. However, high energy prices remain a concern, with natural gas costs projected to be 1.5 times higher, and electricity prices twice as high as they were in 2018-2020.
