UniCredit Bank Austria Industry Overview
Few rays of hope in a challenging industry climate at the start of the year
- Unchanged difficult business situation and gloomy mood in most sectors in Austria
- Austria's industry in its third year of recession: hope for economic recovery not expected until later in 2025
- The construction industry has probably bottomed out, but prospects remain modest
- Slight tailwind for the services sector, but significant sectoral differences are emerging
- Continuation of the positive trading trend from the end of 2024 in the coming months thanks to a further increase in consumer purchasing power, despite some headwind from the labor market
The economic downturn in Austria continued until the end of 2024. However, the improved framework conditions due to low inflation and the easing of monetary policy had a positive impact on consumption and investment. However, foreign trade had a dampening effect on the economy due to a significant decline in exports. Despite the slight upturn in domestic demand, the economic weakness continued in the final quarter of 2024, characterised by a renewed sharp decline in value added in industry. While the construction industry fell only slightly, consumer-related service sectors such as trade and tourism in particular performed well.
“Following the 1.0 per cent decline in GDP in 2023, Austria's economic output fell by an average of 1.2 per cent in 2024 as a whole due to the weak development in the production sectors. Only the service sector was able to contribute to limiting the decline in GDP with a slight increase, despite very different industry developments,” says UniCredit Bank Austria Chief Economist Stefan Bruckbauer.
The majority of domestic companies are entering 2025 with pessimistic production and demand expectations. “The current survey results continue to indicate very subdued economic development with only tentative positive signals for the coming months. Even after the turn of the year, the industry climate is gloomy or cooling in almost all sectors, especially in industry. However, the construction sector now seems to have bottomed out and the situation in the services sector has already become more favourable and is gradually improving,” says UniCredit Bank Austria economist Walter Pudschedl, adding: “In view of the still pessimistic production and business expectations, the weak economic trend is generally expected to continue in the coming months. In industry, the recession is expected to continue for the time being. The construction industry could escape this in the second half of the year at the latest. However, light at the end of the tunnel should come primarily from the services and retail sectors, supported by the easing of monetary policy and real increases in purchasing power thanks to lower inflation. The services sector should therefore become the main pillar for a moderate recovery in the course of 2025 and make a significant contribution to the Austrian economy achieving at least slight GDP growth in 2025.”
To determine the industry climate indicator, the development of production and sales up to the 4th quarter of 2024 is compared with the results of the economic survey up to February 2025
Industry still trapped in recession
In industry, real production fell by an annual average of 4.7 per cent in 2024 (Önace: manufacturing of goods). This sharp decline was primarily due to some sectors that are heavily dependent on the international capital goods economy. There were massive production cutbacks in metal processing and mechanical engineering as well as in the automotive industry, among others. The textile and clothing industry suffered the sharpest slump. Only a few sectors were able to increase their real production output in 2024. These include consumer-related sectors such as food production and the pharmaceutical industry. The business situation deteriorated in most industrial sectors towards the end of the year. Metal goods production and mechanical engineering are under particularly strong pressure, while cautiously positive signals were only noticeable in plastics production and vehicle construction.
“In addition to the ongoing global reluctance to invest and the problems in important sales markets, the reduced competitiveness and increasing protectionism in global trade are also weighing on the prospects for the domestic industry. As a result, sentiment in the sector and production expectations for the coming months remain clearly pessimistic despite a slight improvement since the start of the year,” says Pudschedl, adding: “The recession in the industry must be expected to continue at least for the first half of the year, with chances of a recovery only in the latter part of 2025. Production expectations for the year as a whole in the survey of Austrian purchasing managers were clearly back in the range that gives hope for growth in February.”
Construction seems to have bottomed out
Following the stagnation in construction output in 2023, there was an annual average decline of 2.6% in 2024 (real, adjusted for working days). At over 10 per cent, the slump in building construction was by far the sharpest. Despite the recession in the sector, the situation on the labour market deteriorated relatively little. The seasonally adjusted unemployment rate was 9.3 per cent at the beginning of the year, only two tenths of a percentage point higher than a year ago. At the start of 2025, over 20 per cent of entrepreneurs stated that labour shortages were the biggest obstacle to production. For over 30 per cent of entrepreneurs, however, it was the lack of orders.
“The order situation at the beginning of 2025 has deteriorated in all sub-sectors compared to the end of 2024, which is due to the particularly unfavourable development in building construction. In view of the assessment of the order situation by entrepreneurs, the economic low point in construction appears to have been overcome, but there is hardly any growth in sight for the time being. Despite tight public budgets, the outlook for civil engineering in the coming months is more favourable than for building construction, although there is now light at the end of the tunnel, even in residential construction,” says Pudschedl.
The decline in the number of flats with planning permission came to an end in the second half of 2024. The momentum of construction costs has stabilised and the upward trend in construction prices is significantly lower, although this is putting pressure on the earnings situation of construction companies. The affordability of property has increased somewhat in view of the sharp rise in wages and at least a slight fall in property prices. In addition, the expiry of the so-called KIM regulation in mid-2025 should bring more flexibility for financing, which has already become more favourable due to the ECB's easing of monetary policy. However, the reduction of various subsidy measures for budgetary reasons could have a negative impact on the finishing trades in the coming months.
Slight improvement in the service economy and prospects for more
Towards the end of 2024, the service sector picked up some momentum and was once again the only driver of growth in the economy as a whole. However, development in the individual sectors continued to be very uneven. Growth impetus came primarily from trade and leisure services as well as financial and insurance services. In contrast, real estate and housing, information and communication services and transport services (excluding air transport) continued to suffer real losses. Despite good occupancy rates and record overnight stays, real turnover in the accommodation and food service industry also fell due to a reluctance to spend on the part of guests, more so in the catering sector than in accommodation.
The decline in inflation continues to support a strengthening of purchasing power, and a gradual dissipation of the high level of consumer uncertainty should reverse the rise in the savings rate in the coming months, which should have a positive impact on developments in many parts of the service sector.
“After a very mixed summer, the industry climate improved noticeably in the second half of 2024 and this positive trend continued at the start of 2025. Business expectations are also at least slightly positive,” says Pudschedl, adding: “The service sector should remain on course for growth and momentum should even gradually pick up slightly in the coming months. However, sentiment in the sector and demand expectations for the next three months are still below the long-term average, which should keep the upswing weak.”
Retail sales profit from slowly waning reluctance to buy
The increased purchasing power of consumers was reflected positively in the development of retail sales towards the end of 2024. Following a real decline of 3.5 per cent in 2023, the annual average for 2024 even saw a slight increase in sales of 0.9 per cent. While the food retail and household electronics retail sectors showed solid growth, there were clear declines in sales, particularly for sporting goods, textiles and household appliances. Business expectations improved again slightly at the start of 2025. However, consumers' high real wage growth should enable a gradual improvement in the retail sector and the gradual reversal of the high propensity to save means that sales growth can also be expected in the non-food sector in the coming months.
In the automotive trade (including garages), sales momentum declined significantly over the course of 2024. On average, nominal sales rose by around 2 per cent, driven much more strongly by garages than by the motor vehicle trade itself. After the start of 2025, business expectations in the sector began to cloud over again. Despite consumer uncertainty regarding e-mobility, the new car business has picked up noticeably since the autumn. Despite the cautious business expectations, based on the market launch of new vehicle models, the more favourable framework conditions due to lower interest rates and high consumer wage increases, a revival in the automotive trade is expected in the coming months.
Enquiries:
UniCredit Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, Phone: +43 (0) 5 05 05-41957;
E-mail: walter.pudschedl@unicreditgroup.at