Wifo and IHS Present Updated Economic Forecast for Austria

In April, Wifo and IHS had forecast economic growth of 0.9 or a similar figure for this year. These assessments have now been largely confirmed. "Die Wirtschaftsforscher des Wifo bestätigten am Donnerstag die BIP-Prognose für das laufende Jahr", the institute stated.

The Wifo economists now expect economic growth of 1.1 percent for 2027, which is 0.2 percentage points less than in the last forecast in April. The IHS, on the other hand, raised its growth forecast for real gross domestic product next year by 0.2 percentage points to 1.0 percent.

Growth Expectations in Detail

"Die IHS-Ökonomen erhöhten die Wachstumsaussichten um 0,3 Prozentpunkte", the institutes reported. Overall, the forecasts paint a mixed picture: While Wifo is somewhat more cautious for 2027, IHS is more optimistic about the coming year.

The Institute for Advanced Studies (IHS) still expects a stagnation of Austrian economic output in the second and third quarters of 2026, with the domestic economy only expected to regain momentum toward the end of the year. Wifo also sees a similar development: "Mit dem Rückgang der Energiepreise werde die Konjunktur ab der zweiten Jahreshälfte wieder an Schwung gewinnen."

Stagnation in Summer, Recovery in Winter

"Österreichs Industrie und Exportwirtschaft dürften bis Ende 2027 wieder am weltweiten Aufschwung teilhaben", the economic researchers explained. This connects the domestic export economy to its traditionally strong international integration.

The national unemployment rate rose from 6.3 percent in 2022 to 7.4 percent in 2025. Unemployment figures in Austria have been rising continuously since spring 2023. For the current year, Wifo and IHS still expect the unemployment rate to rise to 7.5 percent.

Labor Market Under Pressure

In 2027, the unemployment rate is then expected to fall to 7.3 percent. According to the institutes, this would mark the first slight easing on the labor market since spring 2023. However, the institutes emphasize that this is tied to a robust economic recovery.

Domestic inflation is expected to amount to 3.0 or 3.2 percent this year. The institutes assume a significant decline in inflation next year to 2.3 percent (IHS) and 2.4 percent (Wifo), respectively. This would bring price increases closer to the ECB target of two percent, though not yet reaching it.

Inflation on the Retreat

The Iran war and the rising crude oil and natural gas prices caused inflation in Austria to spike sharply from March to May this year and dampened business and consumer sentiment. The Iran-US negotiations over a permanent end to the war have recently caused oil and fuel prices to fall sharply again.

Since mid-May, oil and fuel prices have been falling again and have recently approached pre-crisis levels again. According to the institutes, this development supports the economic recovery in the second half of the year and dampens inflationary pressure.

In the eurozone, inflation rose to 3.2 percent in May, driven by higher oil prices as a result of the Iran conflict. On June 11, the ECB raised its key interest rate for the first time in nearly three years. ECB Director Isabel Schnabel had signaled further interest rate moves.

ECB Interest Rate Policy as a Framework Condition

Financial markets expect at least one further interest rate move in the remainder of the year. ECB Chief Economist Philip Lane had recently warned that inflation could remain above the ECB's two percent target for some time to come. "Allerdings ist die bisherige Erhöhung der Leitzinsen um 0,25 Prozentpunkte gering, und die Zinsen sind noch nicht restriktiv", said Schnabel.

Schnabel stressed that energy prices for deliveries in the coming years would remain elevated. "Die Energiepreise sind gefallen, aber sie liegen noch immer deutlich höher als vor dem Krieg", the German ECB Director explained. The ECB is monitoring energy prices for future deliveries particularly closely.

The ECB Director pointed out that the economy had so far coped relatively well with the major energy price shock. "Das hat auch damit zu tun, dass der Iran-Krieg vom KI-Boom überlagert wird, der die globale Wirtschaft stützt", said Schnabel. The AI boom is cushioning the economic drag from the war.

Geopolitics and Its Impacts

Schnabel also emphasized that in many countries, the public sector is cushioning the energy price shocks for citizens. Particularly in Germany, significant funds are flowing into infrastructure renewal and defense. These fiscal impulses are supporting the economy.

"Die Waffenruhe in Nahost sei kein Grund zur Entwarnung für die Geldpolitik", Schnabel warned. Interest rate hikes dampen economic activity, yet the growth recovery remains intact. "Die Wachstumseinbußen sind laut unseren Projektionen nicht so stark, wie man es hätte erwarten können", she said.

Schnabel also warned of medium-term inflation risks: "Das alles kann die Inflation auf mittlere Sicht anheizen". Falling oil prices could make it easier for companies to pass on previously risen costs to consumers as demand increases. According to Schnabel's assessment, the end of the Iran war could give the economy new momentum.

The institutes Wifo and IHS are the two leading Austrian economic research institutes. Their forecasts form an important basis for the government's budget planning and for the ECB's monetary policy assessment. The next major forecast is expected in autumn.