Economic Sentiment in Austria Deteriorates Again in June

Consumers Under Pressure

A key reason for the downturn is the uncertainty felt by domestic consumers due to rising unemployment and inflation. The dampening effect is attributable to increased uncertainty among domestic consumers because of rising unemployment and inflation. This is leading to weakening business activity particularly in retail, hospitality, and travel agencies. The decline in sentiment since the beginning of the year has been especially steep in the services sector, as Bruckbauer emphasized.

Industry is also facing headwinds. In manufacturing, insufficient order books and higher energy and labor costs are fueling renewed pessimism. Order books are not sufficiently filled, and rising energy and personnel costs are placing an additional burden on production.

Industry and Construction Under Pressure

The construction sector remains strained despite a slight improvement. Despite an improvement, sentiment in construction remained very strained. In structural engineering, new business is lacking, while order books in civil engineering and the ancillary trades have improved slightly. A sustained recovery is not in sight for now.

Foreign trade provided little growth impetus according to the economists. The economists noted that foreign trade provided only limited impetus. This means another important pillar is missing to support the domestic economy.

Geopolitics and Monetary Policy

The geopolitical situation is also having a dampening effect. The lack of confidence in a stable agreement between the United States and Iran has once again darkened economic sentiment in Austria. The recent escalation in the Iran war means additional uncertainty for the European Central Bank (ECB) in shaping its monetary policy, according to Bruckbauer.

In light of these uncertainties, Bruckbauer expects the ECB to raise its key interest rate by 25 basis points in September. Subsequently, it is likely to "eine abwartende Haltung einnehmen und den Einlagenzins bei 2,50 Prozent belassen". An abrupt change in course is not expected for now.

Inflation Outlook

On the inflation front, however, some easing is taking shape. Inflation is likely to fall from 3.4 to 3.2 percent this year. For 2027, the Bank Austria economists expect an inflation rate of 2.5 percent, down from a previous forecast of 2.6 percent. Over the course of 2027, inflation should weaken noticeably and reach values of around 2 percent year-on-year in the second half of the year, provided energy prices do not experience renewed upward surges, explained Bank Austria economist Walter Pudschedl.

Overall, the indicator shows that the Austrian economy is operating in a difficult environment. The combination of geopolitical tensions, high inflation, rising unemployment, and weak industrial activity is braking the recovery. Only when uncertainties — for example regarding the Iran conflict and energy prices — are resolved is sentiment likely to brighten sustainably.