OeNB Lowers Economic and Inflation Forecasts for Austria

The revision follows a phase of elevated energy prices triggered by the Iran war. The OeNB places its assumptions under the explicit premise of a normalization of commodity markets, but points out that economic development will depend significantly on the further course of energy prices.

Energy Prices as a Central Risk Factor

The mild scenario assumes a gradual easing of energy prices. Should this expectation not materialize, additional burdens threaten the domestic economy. The central bank is thereby also signaling uncertainty about the further path of the economy.

The revised figures are consistent with an increasingly subdued assessment of domestic economic prospects. The OeNB had recently already pointed to risks for growth and price stability. With the new forecast, this assessment is now quantified.

Implications for Fiscal and Monetary Policy

The weak growth outlook is likely to fuel the debate over fiscal policy measures in Austria. An economy with GDP growth of only 0.5 percent in the current year reduces the room for additional budgetary stimulus without further increasing the debt ratio.

At the same time, inflation remains at an elevated level of 2.9 percent. Real incomes of private households therefore remain under pressure. The central bank emphasizes in its projections that monetary policy remains oriented toward safeguarding price stability.

With the assumption that energy prices return to pre-war levels, the OeNB paints a comparatively cautious view of Austrian economic development. The actual economic performance is likely to depend decisively on how quickly commodity markets normalize.

OeNB Scenario Framework

The OeNB publishes its forecasts within a scenario framework that covers different paths for energy prices. The mild scenario underlying this analysis assumes a full normalization of commodity markets. Other central bank scenarios may show differing growth and inflation paths.