OeNB Forecast: GDP 0.6% in 2026, Inflation 3.2% – Risks from the Middle East War

At the same time, the central bank pointed to significant downside risks. "Der Krieg im Nahen und Mittleren Osten belastet die wirtschaftliche Entwicklung in Österreich. Gestiegene Energiepreise- und Rohstoffpreise schwächen die Kaufkraft der Haushalte und wirken dämpfend auf die heimische Wirtschaft. Gleichzeitig sorgt die hohe geopolitische Unsicherheit für Zurückhaltung bei Investitionen," Kocher stated. The OeNB's chief economists also emphasized that, roughly 100 days after the start of the war, energy prices are significantly elevated and supply chains are increasingly being disrupted.

Inflation significantly above previous year's level

The OeNB revised its HICP inflation forecast for 2026 substantially upward to 3.2 percent – 0.5 percentage points more than in the March forecast. For 2027, the central bank expects a decline to 2.4 percent, and for 2028, a decline to 2.1 percent. Other economic researchers had already assumed similarly high values back in April: WIFO (Austrian Institute of Economic Research) had forecast 2.7 percent, and IHS (Institute for Advanced Studies) had forecast 2.7 percent.

According to the OeNB, inflation will be driven primarily by high fuel prices as a result of the war, as well as by indirect effects on food and industrial goods prices, which are expected to remain elevated through 2028. The central bank does not expect inflation to reach the peaks seen in 2022 and 2023. For services, the OeNB anticipates moderate easing, supported by waning wage pressure.

Labor market stable – budget under pressure

Regarding the labor market, the OeNB assumes that the unemployment rate will remain at the previous year's level of 7.4 percent in 2026, drawing on data from the Public Employment Service (AMS). WIFO and IHS had previously published growth forecasts of 0.9 percent and 0.5 percent, respectively, for 2026.

At the same time, the OeNB warns of a deteriorating budget situation. The public debt ratio is expected to rise to 86.4 percent by the end of 2028. Higher interest expenditures, rising EU contributions, and demographically driven additional spending would offset the impact of the consolidation measures adopted at the federal level. IHS estimates the budget deficit for 2028 under current conditions at 3.2 to 3.3 percent of GDP – above the EU fiscal threshold of 3.0 percent.

Government austerity measures and reactions

Finance Minister Markus Marterbauer (SPÖ) presented austerity measures on Wednesday, which include, among other things, cuts to environmental subsidies as well as only partial adjustment of public sector salaries, pensions, and income tax brackets to past HICP inflation. The OeNB puts the net consolidation volume for 2027 and 2028 at 1.4 percent of GDP each. Fiscal Council President Christoph Badelt commented: "Das wird schlicht nicht reichen."

IHS Director Holger Bonin pointed to additional uncertainties stemming from geopolitical crises and potentially higher deficits at the state level. The draft budget of the three-party coalition provides for Austria's debt ratio to rise to 83.6 percent in 2027 and 83.8 percent in 2028. The OeNB expects the budget deficit to decline only marginally in 2026 and to remain at nearly 4 percent of GDP in 2028.

OeNB scenarios: from mild to severe

In its supplementary scenarios, the OeNB paints a differentiated picture: In a mild scenario, growth would rise to just under 1.5 percent and inflation would fall to just under 2 percent. In a severe scenario, the Austrian economy would stagnate in 2027, inflation would rise above 5 percent, and the budget deficit would approach 5 percent in 2028. Even in the mild scenario, the EU 3 percent target for 2028 is not realistic from today's perspective.

Chief Economist Wolf Heinrich Reuter recommended that the government pursue "weitere Budgetkonsolidierung und strukturelle Reformen," "insbesondere in jenen Bereichen, in denen die Ausgaben besonders dynamisch steigen." The measures adopted at the federal level "werden allein nicht ausreichen," according to Reuter. The OeNB thus sees pressure on domestic fiscal policy rising significantly.

Outlook: New WIFO and IHS forecasts at the end of June

With regard to monetary policy in the euro area, Kocher welcomed the European Central Bank's most recent key interest rate move. "Die gestern beschlossene Erhöhung der Leitzinsen trägt zur Stabilisierung bei. Die Europäische Zentralbank wird weiterhin entschlossen handeln, um das Euroraum-Ziel von 2 % in der mittleren Frist sicherzustellen," the OeNB Governor said. The central bank regards the move as a contribution to safeguarding the medium-term return to 2 percent inflation in the currency bloc.

New forecasts from WIFO and IHS are scheduled to be published on June 25 and will show whether the two institutes align their assessments with the OeNB's view. The OeNB press office can be reached at phone (+43-1) 404 20-6900 and by email at marlies.schroeder@oenb.at. The original release was distributed on June 12, 2026, at 09:04 (OTS0030).