Austria Faces Slower Growth and Elevated Inflation as OeNB Highlights Impact of Energy Prices and Geopolitics

Oesterreichische Nationalbank (OeNB) Main entrance
Source: OeNB

(IN BRIEF) The Oesterreichische Nationalbank’s Interim Outlook for 2026–2028 projects modest economic growth for Austria, with GDP expected to increase by 0.5% in 2026 before gradually rising to around 1% in the following years. While the economy showed early signs of recovery, the escalation of conflict in the Middle East and rising energy prices have introduced significant uncertainty, impacting both growth and inflation forecasts. Inflation is expected to reach 2.7% in 2026 before declining in subsequent years, although risks remain elevated. The labor market is projected to stay stable, while fiscal deficits are expected to remain above 4% of GDP. The OeNB also reported improving financial results, with losses narrowing in 2025 and a return to profitability anticipated over time. Additionally, the central bank continues to support research and innovation, allocating over €60 million in funding. Overall, the outlook reflects a fragile recovery shaped by geopolitical developments and energy market dynamics.

(PRESS RELEASE) VIENNA, 24-Mar-2026 — /EuropaWire/ — The Oesterreichische Nationalbank (OeNB) has released its Interim Outlook for Austria covering the period from 2026 to 2028, alongside its 2025 Annual Report and financial statements, offering a detailed assessment of the country’s economic trajectory amid rising geopolitical uncertainty.

According to the latest projections, Austria’s economic recovery is expected to proceed at a modest pace, with GDP growth forecast at 0.5% in 2026, followed by a gradual improvement to 1.0% in 2027 and 1.1% in 2028. While the economy showed signs of stabilization in 2025, expanding by 0.7% after two years of recession, the recent escalation of conflict in the Middle East and the resulting surge in energy prices have introduced new risks, dampening near-term growth expectations.

OeNB Governor Martin Kocher noted that although economic activity at the start of 2026 remained relatively strong, the geopolitical situation has significantly clouded the outlook. Current projections assume that energy prices will ease in the second half of 2026, limiting the long-term impact on growth and allowing the economy to regain momentum in subsequent years.

Inflation is expected to remain elevated in the short term, with consumer prices projected to rise to 2.7% in 2026. This increase is largely attributed to higher commodity prices, with the ongoing geopolitical tensions contributing an estimated 0.6 percentage points. Inflation is then anticipated to gradually decline to 2.3% in 2027 and 2.1% in 2028 as energy markets stabilize. However, the outlook remains subject to considerable upside risks, particularly if commodity prices remain volatile.

The labor market is projected to remain relatively stable, with the unemployment rate expected to hold at 7.5% in 2026. Meanwhile, fiscal projections remain broadly unchanged compared to previous estimates, with Austria’s budget deficit expected to remain above 4% of GDP in the coming years. Although slightly improved figures for 2025 provide a better starting point, weaker growth prospects and recent policy measures, including tax reductions on electricity and essential goods, continue to weigh on public finances.

Given the high level of uncertainty, the OeNB has developed alternative scenarios to assess potential outcomes. In the event of prolonged geopolitical tensions and sustained increases in energy prices, economic growth in 2026 could slow further to 0.2%, while inflation could rise to 3.8%. In a more adverse scenario, Austria could experience a mild recession, with GDP contracting by 0.2% and inflation reaching 4.2%.

The broader euro area faces similar risks, prompting continued vigilance from the European Central Bank. At its March 2026 meeting, the ECB reaffirmed its commitment to maintaining inflation at its 2% target over the medium term, with monetary policy decisions continuing to be guided by incoming economic data.

Alongside its economic outlook, the OeNB reported an improving trend in its financial performance. While the central bank recorded a net loss of €1.023 billion in 2025—primarily due to the lingering effects of past monetary policy measures—the result represents a significant improvement compared to the previous year, with losses halved. Vice Governor Edeltraud Stiftinger noted that declining interest expenses and the gradual normalization of monetary conditions are expected to support a return to profitability in the future.

The OeNB’s balance sheet expanded to €256 billion at the end of 2025, driven largely by increased valuations of its gold reserves amid rising market prices. Despite these valuation gains, profits related to gold holdings are retained as reserves rather than being recognized in the profit and loss account, in line with Eurosystem practices.

In addition to its monetary and financial responsibilities, the OeNB continues to play a key role in supporting research and innovation. In 2025, the central bank allocated more than €60 million to research initiatives in Austria, including €50 million in funding to the National Foundation for Research, Technology and Development. These efforts place particular emphasis on supporting young researchers and advancing fundamental scientific work.

Overall, the OeNB’s latest outlook highlights a cautiously optimistic but uncertain path for Austria’s economy, shaped by external risks, evolving energy markets, and ongoing efforts to maintain stability and support long-term growth.

Media contact:
Marlies Schroeder
Chief Press Officer (OeNB)
Phone: +43 1 40420-6900

SOURCE: Oesterreichische Nationalbank