Why the upswing in Austria is not as expected

The National Bank expects gross domestic product to grow by just 0.8 percent in 2026 and is therefore more pessimistic than WIFO and IHS, which expect rates of around one percent. In other words: Austria’s economy is winding its way out of the economic slump, but is not regaining the strength that would have been expected after three years of recession and recent stagnation.

Why does it fall? upswing not stronger?

National Bank boss Martin Kocher and OeNB economic expert Gerhard Fenz name several “Brake factors”.

For a long time, households reacted to the many wars and crises of our time by fearful saving instead of joyful consumption. The inflation shock is still in the bones of many people. The savings rate is now falling again from a historically high 11.6 to a more “normal” 9.5 percent. However, previous rates of around five percent are still far from being reached. As a result, many billions remain unused in savings accounts with hardly any interest. In order for private consumption to take off, there would need to be a more positive feeling of optimism among the population, which is not and does not want to arise in view of the many challenges and problems that extend far into the political and socio-political spheres.

• Increased financing costs

In the fight against inflation, interest rates have risen after many years of a zero interest policy. This has left deep marks in residential construction, for example. Although interest rates have fallen again, the OeNB knows that, based on building permits, stagnation at best is to be expected in the construction industry. During the times of rising interest rates, construction activity fell by 20 percent, and in 2026 it will only catch up by three percent – if the forecasts hold.

• Geopolitical uncertainties

In particular, US President Donald Trump and his erratic economic and foreign policy as well as the many unresolved conflicts from Ukraine to the Middle East will continue to shape world events in 2026 and are slowing down the global economy and global trade. The growth rates of the USA and China are also lagging behind previous values. A small, open economy like Austria, which makes 60 percent of its living from exports, cannot escape the trend. In addition, the Austrian export business model is generally at risk.

• Endangered growth model

The loss of price competitiveness can hardly be explained away. The recent moderate wage agreements have not changed anything about this so far. The OeNB data shows: With inflation rising by 30.1 percent between 2020 and the third quarter of 2025, domestic unit labor costs rose by an impressive 32.6 percent in the same period – but on average in the Eurozone “only” by 24.3 percent. As a direct result, Austria has continually lost export market shares.

China’s increasing strength on the world market is also giving more and more food for thought. It is no longer just the unrivaled price of Chinese goods. The share of complex export goods in Chinese exports, i.e. products with a higher high-tech content, rose from 12 to 39 percent between 2003 and 2023. Or vice versa: 26 percent of Austrian goods exports are already exposed to strong Chinese competition. Mechanical engineering as well as metals and metal products are particularly affected.

And if these braking factors weren’t enough, there’s also the budget deficit of more than four percent. The increasing expenditure on health and pensions, the increasing expenditure on interest and unemployment, and not least the investments in the armed forces and its equipment are eating up almost the entire consolidation volume achieved in the double budget for 2025/26. This means: In order to get back to the permitted Maastricht deficit of three percent by 2028, further savings packages must be put together. The Fiscal Council recently named a necessary volume of between five and nine billion euros. This means that the state does not have the money for stimulating measures, it has to save heavily, but must not completely stifle the weak economy by restricting spending too much.

The bottom line for OeNB boss Kocher is that structural reforms are needed to spark new confidence among the population and also among companies. Kocher is convinced that structural policy plays a crucial role in such a phase. Take pensions, for example: While the debate about a possible higher starting age is unlikely to trigger any cheers among the population, the former economics and labor minister is convinced that the new tax-free additional income option for pensioners could definitely have positive effects. Kocher pragmatically: “We have to conduct the debates less ideologically.”