Austrian economy remains weak

Erste Bank Research Team Erste Bank

Economy remains weak, second year of recession

After a recession in 2023, the economy continued to decline in 2024. All components of GDP shrank, except for public consumption. Based on sentiment indicators and preliminary business cycle indices, no upturn is yet in sight. Inflation has recently fallen due to energy prices but remains above the eurozone average due to increased inflationary pressure in the services sector. The labour market remains stable, even though the number of vacancies has fallen, and the unemployment rate has risen slightly.

Increasing deficit in 2024, possible deficit procedure

In 2023, the budget deficit was reduced from -3.3% of GDP to -2.7% of GDP. The public debt-to-GDP ratio rose slightly from 78.4% in 2022 to 78.6% in 2023, partly due to last year's recession. The Maastricht deficit will remain well above the threshold of 3.0% of GDP in 2024. Due to the continued weak economic development and the parliamentary elections in September, the budget situation for 2025 and the following years is unclear.

Risk premium should continue to fall

The European Central Bank (ECB) began to lower its key interest rates at the beginning of June. After four interest rate cuts, we expect further interest rate cuts at the upcoming meetings. The risk premium for 10-year Austrian government bonds compared to 10-year German government bonds narrowed significantly in 2024 and recently stood at just under 40 basis points. We expect risk premiums to continue to fall slightly in the coming quarters, also due to positive rating reports.

High ratings confirmed once again

All four major rating agencies confirmed Austria's high ratings. Standard & Poor's revised Austria's outlook from stable to positive in August 2024 due to the reduced risk of a medium-term energy shortage resulting from Austria's dependence on Russian gas. On the other hand, the rating agencies are concerned about the sharp rise in public debt and the weak growth trend of the Austrian economy compared to other economies.

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Erste Bank Research Team

Erste Bank

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