Forecast for 2024 and 2025
Vienna (OTS) – The economic weakness in the EU is particularly affecting the countries Germany and Austria, which specialize in capital goods. The high interest rates are weighing on investment demand as well as demand for construction services. By mid-2024, the economy in both the euro area and Austria should pick up speed again as the ECB will loosen its monetary policy. For the year as a whole, WIFO expects continued weak economic growth of just 0.2%. In 2025 it accelerates to 1.8%.
“The upturn originally expected for the beginning of 2024 has been delayed. Surveys of domestic industrial companies showed a further deterioration in sentiment in February 2024,” says Marcus Scheiblecker, one of the authors of the current WIFO forecast.
Figure 1: Sentiment indicators for Austrian manufacturing – on the WIFO website
The high interest rates in the euro area are significantly dampening demand for capital goods. In the fourth quarter of 2023, both investments in equipment and construction investments fell in this economic area (in real terms, compared to the previous quarter).
The economies of Germany and Austria, which specialize in the production of machines, are particularly suffering from this decline in demand. In both countries, where business sentiment is currently gloomy, the economy will once again grow weaker than the euro area average in 2024. For Austria, WIFO expects growth of just 0.2%.
Overview 1: Main results of the forecast – on the WIFO website
The inflation rate in the euro area fell much more quickly and from a higher level than in the USA, reaching 2.8% in January and falling further to 2.6% in February. This means that it has quickly approached the ECB’s 2% target in recent months. This, as well as the weak economy, should enable the ECB to begin easing monetary policy from mid-2024. Germany and Austria in particular should benefit from the subsequent revival in investment demand. As the economic situation improves, Austria’s GDP is expected to expand from mid-2024 and grow by 1.8% in 2025.
A further slowdown in inflation is also expected in Austria. The inflation rate will fall to 3.8% this year after 7.8% last year and will fall further to 2.7% in 2025.
The labor market is reacting with a delay to the economic downturn. After the number of employed people rose by 1.2% in 2023 despite the recession, an increase of only 0.4% is expected in 2024. Based on the forecast economic recovery, employment will also grow more strongly again in 2025 (+1.1%). In return, the unemployment rate should fall to 6.5% (2023: 6.4%; according to national calculation method) after a temporary increase to 6.7% (2024).
The weak economy, especially in the energy-intensive industry, and the warmer than average February are contributing to a greater reduction in greenhouse gas emissions than calculated in the last WIFO forecast. A decline of 2.5% is expected for 2024. In this forecast, WIFO is forecasting key figures for income distribution for the first time (see box “Beyond GDP: Indicators of income distribution”, in WIFO economic forecast 1/2024) and expects a further increase in the relative risk of poverty from 2023, while distribution inequality will tend to decrease becomes.
For definitions see “Methodological notes and short glossary”.
Questions & Contact:
Please send any questions to Mag. Dr. on Friday, March 22, 2024, from 1 p.m. to 3 p.m. Marcus Scheiblecker, Tel. (1) 798 26 01 – 245, marcus.scheiblecker@wifo.ac.at
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