4.7 Percent
The Austrian Institute for Economic Research forecasts that Austria's economy will contract for the third year in a row in 2025
Servus!
Last week, I wrote to you about the possible advantages Austria could take downstream of Germany and Europe’s forthcoming investments in defense, infrastructure, and green technology. The Austrian Institute for Economic Research (WIFO) believes, too, that German investment could be a fillip for Austria. “From the middle of the year,” meaning mid-2025, the institute wrote last week, “economic activity in the European Union should regain momentum and export demand should pick up somewhat. As a result, the Austrian economy should also emerge from its protracted recession and return to a moderate growth trajectory.”
In the meantime, the short-term outlook looks bleak indeed. Austria’s budget deficit in 2024 stood at 4.7 percent; “in addition to the decline in economic output, the 8.8 percent increase in government expenditure in particular contributed to the deficit, driven primarily by salaries in the public sector, pension adjustments, and the valorization of social benefits,” said Statistics Austria. Donald Trump’s announcement last week of 25 percent tariffs on global automotive imports to the United States and the threat of additional tariffs if Canada and the EU work together to “do economic harm” to the U.S., meanwhile, will “weight on sentiment,” WIFO concludes of an industrial sector already laboring through an “unfavorable environment.”
As such, WIFO projects that in 2025, Austria’s economy will fail to grow for the third year in a row, shrinking by 0.3 percent. Taking 2023 and 2024 together, no economy in the EU has performed as poorly as Austria’s. A turnaround should begin in Q2 2025, driven by an upward trend in construction and consumer demand, and therefore in 2026, once the German economy gets going again, Austria’s GDP should grow by 1.2 percent. Still, WIFO’s analysis shows that, examining the period 2019-2029, Austria is looking at a lost decade in which the country has failed to grow the pie and GDP per capita has stagnated and even shrunk slightly.
All of this, before we even get to the issue of Austria’s budget deficit. “Due to the weak business cycle and the high deficit in the previous year, the savings in public budgets”—the projected €6.3 billion in 2025 and a further €2.4 billion in 2026—"will not be sufficient to push the deficit below the 3 percent mark in 2025,” WIFO believes. The deficit “is expected to amount to 3.3 percent of GDP [in 2025] and, despite the improved economic activity, will rise to 3.5 percent of GDP in the coming year [2026] due to planned stimulus measures.”
Indeed, Austria’s new finance minister Markus Marterbauer—an independent nominated by the Social Democratic Party (SPÖ)—warned last week that because the hole in Austria’s budget is far larger than previously anticipated, the previously agreed €6.3 billion in savings in 2025 would no longer be adequate. €12 billion now seems a more realistic figure. Cutting so deeply and violently in year one of a multi-year savings plan, however, would likely drive Austria into a spiral where swingeing cuts would weaken economic growth and reduce government intake, necessitating then even deeper cuts in the following years.
By announcing €6.3 billion in savings for FY 2025, Austria had been trying to avoid an excessive deficit procedure with the EU. That may no longer be possible, though if an excessive deficit procedure means Austria does not have to cut as hard and as fast in the immediate, even if the tradeoffs are oversight from Brussels and a small hit to the country’s credit rating, under the circumstances, Austria may have nothing to fear from it. Important, WIFO believes, is that Austria acts clearly and also implements long-needed structural reforms—deregulation, tax reform, pension reform, labor market reform—as to give Austria a better economic outlook over the medium- and long-term.
Bis bald!
Thank you for reading The Vienna Briefing. Nothing beats a personal recommendation; if you know someone who would be interested in reading this newsletter, consider sharing it with them today.
The Vienna Briefing is a reader-supported publication. Your one-time or monthly tips make my work on this newsletter possible and help keep The Vienna Briefing free for everyone.
Rosenkranz Dis-empowered
Parliament passed a law last week that allows the president of the Austrian parliament to step down or be removed from his oversight position at the National Fund for the Victims of National Socialism. Jewish community officials and representatives of victim groups had refused to attend meetings of the fund’s board presided over by Walter Rosenkranz of the far-right Freedom Party (FPÖ).
Stocker Wins Big
Chancellor and hitherto interim leader of the conservative People’s Party (ÖVP) Christian Stocker has been elected party leader on a permanent basis. Stocker received 98.42 percent of the votes from delegates to an extraordinary party congress held in Stocker’s home town of Wiener Neustadt over the weekend.
Weapons Ban Extended
Vienna police have extended a ban on carrying weapons on or near Reumannplatz that was introduced last year in response to rising reports of violence and criminality in the area. In the past twelve months, police have seized over 100 knives and 22 containers of pepper spray.