By Areena FxAustria’s economy remains weak, continuing its contraction from 2023 into 2024, marking a second consecutive year of recession. All components of GDP have declined, with the exception of public consumption. According to sentiment indicators and preliminary business cycle data, no clear signs of recovery are on the horizon. Inflation has eased somewhat due to falling energy prices but remains above the eurozone average due to rising inflationary pressures in the services sector. The labor market has remained stable, though there has been a slight increase in unemployment and a reduction in job vacancies.
Rising Budget Deficit and Uncertainty for 2025
In 2023, Austria managed to reduce its budget deficit from -3.3% of GDP to -2.7%. However, public debt-to-GDP rose slightly, from 78.4% in 2022 to 78.6% in 2023, partly due to last year’s recession. The Maastricht deficit is expected to stay well above the 3.0% threshold in 2024. With continued weak economic performance and the upcoming parliamentary elections in September, the budget outlook for 2025 and beyond remains uncertain.
The European Central Bank (ECB) began lowering key interest rates in June 2024, with expectations for further rate cuts at future meetings. The risk premium on 10-year Austrian government bonds compared to 10-year German bonds has significantly narrowed, falling to just under 40 basis points. We anticipate further slight declines in these risk premiums over the coming quarters, particularly due to positive rating agency reports.
High Ratings Maintained
All four major credit rating agencies have reaffirmed Austria’s high ratings. Standard & Poor’s revised Austria’s outlook from stable to positive in August 2024, citing reduced risks of medium-term energy shortages due to less reliance on Russian gas. However, concerns remain over the sharp rise in public debt and the sluggish growth trend of the Austrian economy compared to other nations.