Raiffeisen Adjusts Growth Forecast Amid Economic Caution

Raiffeisen Research has slightly revised its growth outlook for 2025, indicating a cautious yet optimistic perspective on the economy. Despite this adjustment, the organization notes that the economic engine is still faltering. Projections for 2026 have worsened compared to earlier predictions made in June, placing Austria among the laggards in growth within the EU, a trend expected to continue into 2026 and 2027.

Matthias Reith from Raiffeisen Research describes the current economic climate as experiencing 'growth in the gray area of economic stagnation.' Following two years of recession, the forecast for this year anticipates a modest growth rate of 0.4 percent, an increase from the previous estimate of 0.2 percent in June. However, the growth expected in 2026 has been adjusted down to 0.8 percent, compared to an earlier projection of 1.0 percent. This means Austria's economic growth will likely remain approximately half the rate of the EU average for both years.

The revision stems from unexpectedly strong growth at the end of 2024 rather than a robust recovery in the current year. Reith emphasizes that while the recession has concluded, a full economic recovery has yet to materialize. Domestic households are anticipated to increase their spending slightly compared to last year; however, they remain more pessimistic than they were a year ago, and even more so than the average household in the Eurozone. Consequently, a significant shift away from 'fear-based saving' is unlikely.

Unemployment continues to trend upwards, and the construction sector is reporting a bleak outlook due to a lack of demand in residential building. On a positive note, the industrial sector sees a glimmer of hope, with projections suggesting a slight increase in production over the year. Nonetheless, the industry remains burdened with high inventory levels and thin order books. Despite a low collective bargaining outcome, the loss of price competitiveness experienced in previous years is still felt.

Reith also expresses skepticism about whether the anticipated German military spending will provide a meaningful impetus for growth, noting that Austrian export businesses are likely to benefit less from a German economic upswing than in the past due to declining competitiveness.