PUBLISHED June 28, 2026
According to the Austrian Institute of Economic Research (WIFO) June 2026 Economic Outlook, Austria’s economy is navigating a temporary setback caused by the Iran war and its impact on energy prices — but the institute expects activity to regain momentum from the second half of 2026 onwards, with growth of around 1 percent projected for both 2026 and 2027.
A Better Starting Point Than Expected
Austria’s economic recovery proved stronger in 2025 than WIFO had assumed in its April 2026 spring forecast. National Accounts data published in early June confirmed that the upturn, which began in Q4 2024, continued into Q1 2026. This makes the starting position for the current year more favourable than assumed in the WIFO Economic Outlook of April 2026. Despite the headwinds now gathering, Austria entered this turbulent period from a somewhat firmer footing than anticipated.
The Iran War Takes Its Toll
The war in Iran and the associated rise in crude oil and natural gas prices are holding back the economy. Consumer price inflation rose significantly in the spring, and sentiment among households and companies has deteriorated. Business surveys show declining confidence, and the combination of higher energy costs and greater geopolitical uncertainty is weighing on both consumer spending and investment decisions. In manufacturing, however, the assessment of the current situation remains notably more positive than a year ago — a relative bright spot in an otherwise cautious picture.
Recovery Expected From the Second Half of 2026
WIFO’s baseline scenario hinges on a gradual normalization of global energy markets. With the gradual normalisation of global production and transport volumes of crude oil and natural gas from the second half of 2026 onwards, and the corresponding fall in energy prices, economic activity is expected to regain momentum. WIFO Director Stefan Ederer noted that futures markets currently anticipate an even faster decline in energy prices than the institute assumed — a development that, if it materializes, could accelerate the recovery. Austria’s industry and export sector are expected to participate in the global upturn, though no strong rebound is foreseen in construction.
Consumer prices are likely to rise more rapidly in 2026 than expected in the latest WIFO Economic Outlook. On the one hand, petrol prices in Austria have reacted more quickly to the global rise in crude oil prices. On the other hand, WIFO expects the fuel price cap to expire at the end of June. Overall, WIFO now projects consumer price inflation at 3.2 percent for 2026, up from its earlier forecast of 3.0 percent. A decline to 2.4 percent is expected for 2027, as lower mineral oil prices outweigh delayed increases in district heating, gas, and electricity costs.
Consumer prices are likely to rise more rapidly in 2026 than expected in the latest WIFO Economic Outlook. On the one hand, petrol prices in Austria have reacted more quickly to the global rise in crude oil prices. On the other hand, WIFO expects the fuel price cap to expire at the end of June. Overall, WIFO now projects consumer price inflation at 3.2 percent for 2026, up from its earlier forecast of 3.0 percent. A decline to 2.4 percent is expected for 2027, as lower mineral oil prices outweigh delayed increases in district heating, gas, and electricity costs.
Modest wage settlements from the previous year and high inflation are dampening purchasing power in the current year, causing real household incomes to shrink once again. Consequently, consumer spending and value added in consumption-related service sectors will increase only moderately over the forecast period. This marks a continuation of Austria’s unusually prolonged consumption weakness — a structural challenge that sets Austria apart from many of its European peers and reflects the depth of the 2024-2025 recession’s impact on household finances.
Employment is expected to expand only moderately in the current year. As a result, the unemployment rate will initially rise further to an annual average of 7.5 percent in 2026. In 2027, the increase in employment will be stronger, causing the unemployment rate to fall slightly for the first time to 7.3 percent. The labor market improvement is thus expected to arrive with a lag — dependent on a sustained economic pickup in the second half of the year that filters through into hiring decisions over the course of 2027.
General government fiscal balance is expected to improve slightly further over the forecast period. It is projected to stand at –4 percent of GDP in 2026 and –3.7 percent in 2027. The public debt-to-GDP ratio will rise to nearly 84 percent by 2027. This trajectory leaves limited room for fiscal stimulus and underscores the importance of the structural reform agenda. With little budgetary buffer available, Austria’s recovery will need to be primarily driven by private demand and external trade rather than government spending.
Modest wage settlements from the previous year and high inflation are dampening purchasing power in the current year, causing real household incomes to shrink once again. Consequently, consumer spending and value added in consumption-related service sectors will increase only moderately over the forecast period. This marks a continuation of Austria’s unusually prolonged consumption weakness — a structural challenge that sets Austria apart from many of its European peers and reflects the depth of the 2024-2025 recession’s impact on household finances.
Employment is expected to expand only moderately in the current year. As a result, the unemployment rate will initially rise further to an annual average of 7.5 percent in 2026. In 2027, the increase in employment will be stronger, causing the unemployment rate to fall slightly for the first time to 7.3 percent. The labor market improvement is thus expected to arrive with a lag — dependent on a sustained economic pickup in the second half of the year that filters through into hiring decisions over the course of 2027.
General government fiscal balance is expected to improve slightly further over the forecast period. It is projected to stand at –4 percent of GDP in 2026 and –3.7 percent in 2027. The public debt-to-GDP ratio will rise to nearly 84 percent by 2027. This trajectory leaves limited room for fiscal stimulus and underscores the importance of the structural reform agenda. With little budgetary buffer available, Austria’s recovery will need to be primarily driven by private demand and external trade rather than government spending.
