Inflation decline and interest rate cut improve outlook for 2025
- Weak Austrian economy with slight improvement trend
The weakness of the manufacturing industry in Austria continues and has spread to various service sectors. After the slight increase of 0.2% compared to the previous quarter at the beginning of the year, GDP stagnated in 2Q24. At the beginning of autumn, although sentiment in all sectors of the economy remains in pessimistic territory, there are first signs that the decline in inflation is beginning to support consumption. According to a first estimate, the Austrian economy grew by 0.3% in 3Q24 and should be able to continue this moderate, albeit still very uneven, upward trend, supported by real wage increases and the easing of monetary policy. After the renewed decline in GDP in 2024 by an estimated 0.5%, we expect real GDP to increase by 1% in 2025.
- Unemployment to rise in 2024, stabilization in 2025
Due to the weak economic development, especially in industry and construction, unemployment continues to rise. In October, the seasonally adjusted unemployment rate was 7.2%. On an annual average, we expect an unemployment rate of 7.0% in 2024. The situation on the labor market is likely to deteriorate further for the time being and only stabilise with the improvement of the economy in the course of 2025. For 2025, we expect the unemployment rate to rise further slightly to 7.2%. Despite the increase, however, the unemployment rate will be lower than in 2019, before the start of the corona crisis, as the labor supply is expected to increase only slowly for demographic reasons.
- Inflation back below 2% yoy
Inflation has fallen significantly since the beginning of the year and is expected to be only 1.8% in October, dampened by the decline in energy prices. Around the turn of the year, inflation is expected to rise slightly above the 2% mark, partly due to the abolition of the electricity price brake. We expect an inflation rate of only 2.9% on average for 2024. For 2025, we expect inflation in Austria to fall to an average of 2.2%.
- Interest rate cut cycle has accelerated
The weak economic outlook and lower inflation expectations have increased pressure on the ECB to continue with interest rate cuts faster than planned. As a result, the deposit rate was cut again by 25 basis points in October, bringing the total to 75 basis points since June. For December, we expect the ECB to lower interest rates by another 25 BP. For 2025, we expect key interest rates to be reduced by 100 BP, with the deposit rate at 2% likely to have reached its final level in the current interest rate cycle as early as September. Due to the unfavorable economic outlook and the imminent economic policy changes in the US, the possibility of lowering key interest rates below the neutral level of around two percent – i.e. a slight expansionary monetary policy course by the ECB – has even increased.
As of November 2024.
About Austria Up-to-date
The information provided by Bank Austria in our publication “Austria Up-to-date” includes current economic forecasts and the most recent data for key indicators, in some cases in the form of charts. The key indicators are supplemented by regular comments, and their impact on the forecast is analysed in this report.
These publications do not constitute investment advice, investment recommendations, marketing communications, or financial analysis. In particular, they are not an offer or solicitation to buy or sell securities and do not constitute a solicitation to make such an offer. They are intended solely as initial information and are no substitute for advice based on the individual circumstances and knowledge of the investor.
It is an analysis based on publicly available economic data. Despite careful research and the use of reliable sources, no responsibility can be taken for completeness, correctness, timeliness and accuracy.
Any investment in securities involves risks. The value of the investment and the income from it may fluctuate suddenly and substantially and therefore cannot be guaranteed. There is a possibility that the investor will not get back the full amount invested, particularly if the investment is held for only a short time. In some circumstances, a total loss is also possible.
Possible (return) payments from the product may not protect investors against inflation risk. There can be no assurance, therefore, that the purchasing power of the capital invested will not be affected by a general increase in the prices of consumer goods. Figures and information on performance refer to the past and past performance is not a reliable indicator of future results.
Only in the context of an investment advisory service can UniCredit Bank Austria AG take into account the personal circumstances of the customer (investment objectives, experience and knowledge, risk appetite, financial circumstances and financial loss tolerance) and carry out a product-specific suitability test.
We would like to point out that the tax treatment depends on the personal or company circumstances of the investor and that the information on tax advantages is provided on the basis of the current legal situation, which may be subject to future changes and for which no information can be given as to whether they will be continued.
