The Austrian National Bank (OeNB) is again more optimistic about this year’s economic growth. It expects the recession to end and now forecasts a 0.2 percent increase in GDP for 2025, after predicting a 0.1 percent decline in March. Further growth is anticipated in the coming years, though strong rebound effects like those seen in past crises are not expected.

“We have reached the trough of economic growth this year; from now on, things will pick up gently,” said Birgit Niessner, Director of the Economics Department at OeNB, on Friday. With its GDP estimate for this year, the central bank is more confident than the Austrian Institute of Economic Research (Wifo) and the Institute for Advanced Studies (IHS). In their most recent March forecasts, Wifo and IHS predicted a GDP decline of 0.3 percent and 0.2 percent, respectively. The OECD’s latest forecast also calls for a 0.3 percent drop.

Austria had a stronger start to 2025 thanks to recently positive industrial production and improved confidence indices. Today’s Statistik Austria data for Q1 2025 show a 0.1 percent GDP increase compared to Q4 2024. “That gave the Austrian economy a better starting point,” Niessner noted. For the coming quarters, the central bank expects a “still weak but positive momentum.” In 2026 and 2027, the OeNB forecasts accelerated GDP growth of 0.9 percent and 1.1 percent, respectively.

However, developments will be dampened by U.S. tariff policy, which burdens the international environment. Companies are also suffering from a growing loss of price competitiveness, and private consumption remains weak. Additionally, government budget measures—such as eliminating the climate bonus and raising taxes—will impede the economic recovery.

The ongoing trade conflict with the United States poses a general risk to the current forecast. In a negative scenario—if U.S. tariffs increase further this summer—GDP growth from 2025 to 2027 could be 1 percentage point weaker overall, said Klaus Vondra from the Economic Analysis Division. Conversely, in a positive scenario—if the U.S. and Europe reach an agreement and fully revoke all tariffs—GDP from 2025 to 2027 could be 0.5 percentage points higher.

Ultimately, the central bank expects that this year will mark the end of the recession, which has been the longest in the Second Republic at ten quarters. However, the modest upswing projected for 2026 and 2027 will be unusually subdued compared to past crises, Vondra explained. Growth will merely return to its potential rate, and a catch-up effect like the post-COVID rebound is not anticipated.

Growth in the coming years will be supported by fading effects that have strongly influenced recent years—such as energy price developments, falling inflation, and lower refinancing costs.

On the demand side, private consumption is likely to improve over the coming years, although not as strongly as originally hoped. Investment growth will remain restrained by international uncertainties and weak building permit figures. Exports are not expected to stabilize until after 2027, in part due to “unfavorable developments in unit labor costs,” Vondra added.

Inflation is forecast at a relatively high 3.0 percent for 2025, driven primarily by higher service-sector inflation and increased energy prices following the end of state relief measures like the electricity price cap. Only in 2026 does the central bank expect inflation to fall to 1.8 percent, with a slight rise to 2.1 percent in 2027.

The budget deficit is likely to remain well above the Maastricht threshold of 3 percent this year despite the government’s austerity measures. “The Austrian state is at the beginning of the right path,” Niessner said. For 2025, a budget balance improvement to –4.2 percent of GDP is forecast. Another improvement to –3.8 percent of GDP is expected in 2026. For 2027, the OeNB projects a deterioration of the deficit to –4.0 percent—assuming no additional consolidation measures by the government.

The budget deficit will also drive up the debt ratio. This is seen at 84.2 percent of GDP for this year (2024: 81.8 percent). In the following two years, the ratio is projected to rise to 85.8 percent (2026) and 86.6 percent (2027).