UniCredit Bank Austria Analysis
Purchasing power would be available again: Less consumer restraint could still prevent a third consecutive decline in GDP in 2025
- The loss of purchasing power of up to 10 per cent due to the sharp rise in inflation in recent years has already been largely offset by wage increases by the first quarter of 2025
- However, different results in wage negotiations and different adjustment dates lead to differences in the development of employees' real purchasing power depending on the sector
- Employees in energy supply, public administration and other economic services are already showing real increases in purchasing power
- In the course of 2025, the increase in collectively agreed wages will ensure that the real purchasing power of 2020 will be fully achieved again on average and probably in almost all main groups
- The significantly higher “perceived” inflation measured using the mini or micro basket of goods explains the high level of consumer restraint despite regained purchasing power
- The regained purchasing power was already reflected in a real increase in disposable income and the savings ratio in 2024. A savings ratio at the level of the long-term average would have provided Austria with economic growth via consumption in 2024
- More active consumer behavior is also crucial for improving the Austrian economy in 2025 in order to avoid another year of GDP decline after all
“The loss of purchasing power due to the inflation shock in recent years has now been largely offset in Austria by high wage increases. In the course of 2025, rising collectively agreed wages will ensure that, despite the inflation of recent years, real purchasing power will be even higher on average than in 2020 before the wave of inflation set in”, says UniCredit Bank Austria Chief Economist Stefan Bruckbauer, adding: “However, in view of the high level of uncertainty among consumers due to the challenging economic conditions and the significantly higher perceived inflation, Austrian consumers have not yet realised this and are exercising restraint in their spending. More proactive consumer behaviour could have prevented a second consecutive year of recession in 2024 and would also be crucial for an improvement in the Austrian economy in 2025 in order to prevent another year of GDP decline after all.”
Loss of purchasing power due to inflation shock offset in 2025
As a result of the Russian attack on Ukraine, energy price rises in particular have fuelled inflation in recent years. The sharp rise in inflation led to massive real wage losses in Austria, as the nominal wage increases to compensate for the price increases were only implemented with a time lag. In October 2022, real wages measured against the development of collectively agreed wages and consumer prices were only 91 per cent of the 2020 annual average. From autumn 2022, real wage losses gradually decreased as inflation slowed. By the time the trend reversed in mid-2023, collectively agreed wages had risen less than inflation for 28 consecutive months.
“Since July 2023, collectively agreed wages have been rising faster than inflation, meaning that real wages have now been rising continuously for 21 months. During this period, the increases have now almost offset the previous losses. Since the turn of the year 2024/25, real purchasing power in Austria has largely returned to the level of 2020. We expect inflation to fall to an average of 2.5 per cent in the course of 2025. In view of an expected increase in collectively agreed wages by an average of 3.9 per cent, the rise in real purchasing power will continue in 2025 and even exceed the level that existed before the start of the inflation shock”, says UniCredit Bank Austria economist Walter Pudschedl.
Development of purchasing power of employees depending on sector
The development of collectively agreed wages in the individual economic sectors deviates from the average value due to different results in the wage negotiations between the social partners. In addition, the comparison of purchasing power is strongly influenced by the different timing of the respective wage increases. The snapshot at the end of the first quarter of 2025 therefore shows certain distortions.
“Employees have already achieved real purchasing power gains in a total of six sectors, including energy supply, public administration and other economic services. Here, employees in building services, security services and temporary workers in particular have achieved increases in purchasing power to date”, says Pudschedl, adding: “In the majority of economic sectors, however, cumulative wage increases have lagged behind inflation since 2020. Particularly in the financial services sector, arts, entertainment and recreation as well as health and social work, employees have not yet received full compensation for inflation. Employees in manufacturing are also currently still suffering from a loss of purchasing power.” For example, the increase in collectively agreed wages in car manufacturing, mechanical engineering and metal processing is still more than two percentage points below that of general consumer prices
Real purchasing power of pensions lags behind
In the course of 2025, the increase in collectively agreed wages will ensure that the real purchasing power of 2020 will be fully achieved again on average and probably in almost all ÖNACE main groups. In contrast, the increase in pensions since the start of the inflation shock will remain below the level of inflation. However, at 0.9 percentage points, the shortfall compared to the real purchasing power level of 2020 is small. In addition, due to the resolutions of the National Council, the increase in pensions in some years was not exclusively in line with the calculated adjustment factor. Direct payments and higher increases mostly favoured small and medium-sized pensions, so that the increase in general consumer prices was more than compensated for in these pensions. In contrast, the loss of purchasing power for recipients of higher pensions is above average due to various caps on increases.
“Perceived” inflation higher
“While the loss of purchasing power due to the inflation shock has now been largely offset by wage increases, the corresponding perception among the Austrian population is different. This is mainly due to the significantly higher perceived inflation, the so-called 'perceived' inflation, which can be estimated using Statistics Austria's mini and micro basket of goods”, says Pudschedl, adding: “Measured by both the mini and micro basket of goods, the real purchasing power of the average collectively agreed wage at the end of the first quarter of 2025 is around six percentage points lower than in the starting year 2020, a clear difference to the general consumer price trend.”
The mini shopping basket represents the 60 most important items of an average weekly purchase. The micro basket better reflects the perception of inflation by measuring only around 20 everyday items that are purchased most frequently.
High perceived inflation slows down consumption and economic momentum
As a result of the still perceived loss of purchasing power, the momentum of consumption in Austria is suffering noticeably. In 2023, private consumption fell by 0.5 per cent in real terms. Consumption stagnated in 2024. While the weakness of consumption in 2023 could still be explained by the reduced real purchasing power as a result of the inflation shock, this argument no longer applies to the development in 2024. Disposable income rose by 3.5 per cent in real terms in 2024. However, the additional income was saved and not channelled into consumption. The savings ratio rose to 11.7 per cent. Over EUR 33.7 billion was put aside by domestic households in 2024.
“From 2010 to 2023 inclusive, the average savings ratio in Austria was 8.7 per cent. If Austrian households had maintained their savings volume at this average level in 2024, the savings ratio would also have been 8.7 per cent in 2024, meaning that around EUR 10 billion more would have flowed into private consumption. Instead of stagnating, these additional funds would have led to an increase in private consumption of almost 3.5 per cent in real terms and thus triggered an additional growth effect for the economy as a whole, meaning that GDP would have risen by 0.5 per cent instead of falling by 1.2 per cent”, says Pudschedl.
More aggressive consumer behaviour could therefore have prevented a second consecutive year of recession in 2024 and would also be a decisive contribution to stabilising or improving the Austrian economy in 2025 in order to avoid another year of GDP decline.
“It is up to domestic consumers to stimulate the economic engine, as foreign trade is unlikely to provide any positive impetus for the time being due to the US tariff policy and the difficult competitive situation for domestic industry”, concludes Bruckbauer.
Further information in our analysis: The regained purchasing power is not yet being perceived, UniCredit Bank Austria, April 2025.
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Walter Pudschedl, Tel.: +43 (0) 5 05 05-41957;
E-mail: walter.pudschedl@ unicreditgroup.at