Austria is sliding into its most severe economic crisis in decades and is joining the ranks of the economic laggards in Europe. The current forecasts from the economic research institutes WIFO and IHS paint a bleak picture: the economic performance is already shrinking for the third year in a row and a trend reversal is not in sight, rather a lost decade is looming.
The ongoing recession is not a temporary weakness, but a deep-seated structural crisis. The industry, traditionally a pillar of the Austrian economy, is particularly affected, as it contributes over 25 percent to the country’s value added. Moreover, the export decline of almost five percent last year is a dramatic fall.
A crucial domestic factor is the automatic adjustment of wages to inflation, which has driven labor costs exponentially higher. By 2026, they are expected to account for almost 70 percent of the value added, which would lower competitiveness, lead to a decline in investments and result in an increasing exodus of companies to other countries.
The new government under Chancellor Christian Stocker (ÖVP) is facing a crucial economic test. Already in the autumn of 2024, it became clear that the budget deficit of over three percent of the gross domestic product would violate the Maastricht criteria. An EU deficit procedure should be prevented at all costs, but now it becomes clear that the 6.4 billion euro austerity package is far from sufficient.
According to WIFO, the deficit from 2024 will be over four percent and will still be at 3.3 percent in 2025. Finance Minister Markus Marterbauer is already speaking of a necessary austerity package of 12 billion euros. However, this austerity drive threatens to further strangle the already weak economy. The opposition warns of a “devil’s spiral” of austerity measures and growing economic stagnation.
Just a few years ago, Austria was part of the “frugal four” and boasted of its fiscal discipline. Now, the country itself is threatened with a deficit procedure that would grant Brussels stronger control rights. This would be a political fiasco, especially for the ÖVP, which had held the finance minister’s office for years.
Chancellor Stocker has announced further consolidation measures, but remained vague. The Social Democrats are refusing additional cuts, while Finance Minister Marterbauer is trying to downplay the looming deficit procedure, saying it is “not a catastrophe.” However, Austria’s economic credibility is at stake.