Austria: Moderate recovery expected

Economy remains weak, inflation still high

After a boom in 2022, the Austrian economy fell into recession from 2Q23. Industry and trade were particularly weak. Tourism supported the economy with a record number of overnight stays in the summer season. The labor market remains tight, even though the number of job vacancies fell somewhat and the unemployment rate rose slightly. Inflation has fallen recently, but remains well above the Eurozone average, due to high energy prices and inflationary pressure in the services sector.

High ratings confirmed once again

All four major rating agencies confirmed Austria's high ratings. Fitch revised Austria's outlook from negative to stable in August 2023, due to the reduced risks of a medium-term energy shortage. On the other hand, the rating agencies are concerned about the recent slowdown in economic growth and the higher and more persistent inflation compared to other Eurozone economies.

No significant debt reduction expected for the time being

In 2022, the budget deficit was reduced from -5.8% of GDP in 2021 to -3.5% of GDP. The public debt to GDP ratio decreased significantly from 82.5% in 2021 to 78.4% in 2022, mainly due to strong nominal GDP growth. The Ministry of Finance's target figures for the budget deficit and public debt 2024-2027 reflect the government's overall commitment to the consolidation path, although the debt ratio is expected to remain rather stable. However, the Maastricht deficit is expected to remain below the threshold of 3.0% of GDP.

Risk premium should remain high for the time being

We expect the underlying price pressure in the services sector to ease in the coming months and that the first interest rate cut on the way to normalizing monetary policy can be implemented in mid-2024. The risk premium of 10- year Austrian government bonds over 10-year German government bonds widened significantly in 2022. In view of the challenging economic conditions, we do not expect any significant narrowing of the risk premium for the time being.

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