The EU Commission sees no rosy prospects for Austria’s economy this year. According to the current forecast, GDP will shrink for the third year in a row in 2025. Austria is the only country for which the EU predicts an economic decline this year. Inflation will remain at 2.9 percent, significantly above the EU average and the target of 2 percent. The deficit will also significantly exceed the permissible value of 3.0 percent, at 4.4 percent of economic output.

The current EU forecast for Austria is therefore significantly worse in all key indicators than the autumn forecast in November. Back then, the EU Commission had assumed economic growth of 1.0 percent and an inflation rate of 2.1 percent. The deficit was expected to be 3.7 percent in 2025. At least the forecast for the unemployment rate remained unchanged at 5.3 percent.

Austria also last in growth in 2024

Austria was already at the bottom of the EU in 2024 with an economic decline of 1.2 percent. The EU Commission writes that declining investments and stagnant consumption were the trigger. High energy prices and sharply rising production costs have weakened the competitiveness of industry. This will also affect exports.

At least the EU Commission expects economic growth of 1.0 percent for 2026. Inflation is also expected to fall to 2.1 percent, practically reaching the EU target. Nevertheless, growth would remain below the EU average and inflation above it. According to the forecast, Austria’s deficit will still be above the Maastricht limit and above the EU average of 3.4 percent in 2026, at 4.2 percent.

IV calls for “substantial reforms”

Austria’s economy needs a “liberating blow” and “appropriate framework conditions,” demanded Christoph Neumayer, Secretary General of the Federation of Austrian Industries (IV) in a statement. Relief is needed especially in energy costs, unit labor costs, and bureaucracy. “To create the necessary leeway for this, Austria needs substantial reforms” in pensions, education, healthcare, and administration. Such reforms “are largely missing from the double budget so far.” Neumayer also referred to the planned new industrial strategy for Austria, “which could quickly provide decisive answers and measures.”

Entire eurozone sees only modest growth

According to Reuters, the eurozone is expected to again post only modest growth this year, with Germany even stagnating. The euro area will reach a GDP increase of 0.9 percent, the EU authority predicted Monday in its spring forecast. In autumn, it had still expected an increase of 1.3 percent. In 2024, the eurozone grew by 0.9 percent.

For the entire EU, Brussels forecasts a GDP increase of 1.1 percent this year and 1.5 percent in 2026: “The EU economy remains resilient despite high trade tensions and increasing global uncertainty,” said EU Economic Commissioner Valdis Dombrovskis, adding: “Supported by a robust labor market and rising wages, growth is expected to continue in 2025, albeit at a moderate pace.”

The main reason for the significant downgrade in the forecast is the rising tariffs and the “increased uncertainty caused by recent abrupt changes in US trade policy as well as the unpredictability of the final tariffs,” the Commission’s forecast says.

Stagnation in Germany

Germany is expected not to emerge from its economic trough in 2025 after two years of recession: The EU Commission predicts stagnation this year, after still forecasting a 0.7 percent increase in the autumn. Only in 2026 will Europe’s largest economy return to growth. With 1.1 percent, however, German GDP is not expected to grow as strongly as that of the eurozone, for which the EU Commission forecasts an increase of 1.4 percent.

Eurozone inflation could soon be under control

Inflation in the eurozone could fall more quickly than previously predicted and approach the European Central Bank’s two-percent target in 2025. The Commission expects the inflation rate to drop to 2.1 percent in 2025 and even fall below the two-percent mark in 2026 at 1.7 percent: “But we must not become complacent,” warned Dombrovskis. The risks to the outlook remain tilted to the downside. “Therefore, the EU must take decisive measures to strengthen its competitiveness.”

Entire EU averaging too high a deficit

Although Austria will have an above-average deficit of over 4 percent of GDP in both 2025 and 2026, it is not alone in having excessive new borrowing. This year, Belgium, Ireland, France, Cyprus, Slovakia, Finland, Denmark, Hungary, Poland, and Romania will also show deficits of over four percent, and three other countries will fall between three and four percent. On average, all EU states together will have new borrowing of 3.3 percent, exceeding the jointly agreed threshold of three percent. This will even worsen slightly in 2026—average new borrowing is expected to rise slightly to 3.4 percent.