Wifo and IHS revise downward Austria's growth forecast for 2027

After the recession years of 2023 and 2024, the Austrian economy returned to growth in 2025, posting an increase of 0.8%. The National Bank (OeNB) had recently updated its own forecasts, estimating growth of 0.6% for this year and an increase of 1.1% for 2027.

Inflation and energy prices

On the price front, the institutes forecast a significant decline in inflation in 2027, expected at 2.3% according to IHS. The forecasts come against a European backdrop marked by the recent surge in eurozone inflation, which rose to 3.2% in May due to the increase in oil prices linked to the conflict in Iran.

On the labour market, the forecasts indicate a further rise in the national unemployment rate to 7.5% in 2026, before falling to 7.3% in 2027. The rate had climbed from 6.3% in 2022 to 7.4% in 2025, reflecting the impact of the weak economic cycle of previous years.

Labour market

According to economists, Austrian industry and exports should once again benefit from the global recovery by the end of 2027. The estimates of the two institutes remain cautious, in a European macroeconomic environment still conditioned by geopolitical tensions.

Isabel Schnabel, member of the Executive Board of the European Central Bank, warned that the recent fall in energy prices could paradoxically fuel inflation: "Hinzu komme, dass der jetzt fallende Ölpreis es für die Unternehmen sogar leichter machen dürfte, ihre zuvor gestiegenen Kosten auf die Verbraucherpreise zu überwälzen, weil jetzt die Nachfrage wieder stärker anspringen dürfte: 'Das alles kann die Inflation auf mittlere Sicht anheizen', warnte Schnabel."

Schnabel's statements

Schnabel also stressed that the interest rate hikes applied so far by the ECB are modest: "Allerdings ist die bisherige Erhöhung der Leitzinsen um 0,25 Prozentpunkte gering, und die Zinsen sind noch nicht restriktiv." The economy, despite the strong energy shock, has shown itself to be relatively resilient: "Die Wachstumseinbußen sind laut unseren Projektionen nicht so stark, wie man es hätte erwarten können."

The ECB's chief economist, Philip Lane, had also recently warned of the risk that the inflation rate will remain "geraume Zeit" above the 2% target set by the European Central Bank.

On the energy front, Schnabel recalled that "Die Energiepreise sind gefallen, aber sie liegen noch immer deutlich höher als vor dem Krieg", noting that price levels remain structurally higher than pre-war levels.

According to analysts, the conflict in Iran has been partly overshadowed by the artificial intelligence boom, which is supporting the global economy: "Das hat auch damit zu tun, dass der Iran-Krieg vom KI-Boom überlagert wird, der die globale Wirtschaft stützt." At the same time, in many countries the state is spending resources to mitigate the impact of the energy shock on citizens.

European context and the ECB's role

Markus Marterbauer, chief economist at Wifo, presented the forecasts together with his IHS colleagues during the customary mid-year joint press conference. The estimates of the two institutes represent a key reference for the government and for businesses in economic planning.

The downwardly revised growth forecasts for 2027 reflect, according to economists, the uncertainty linked to the evolution of the conflict in Iran and its effects on energy prices, as well as the persistence of geopolitical tensions that continue to weigh on European prospects.

The institutes also highlighted how the weak economic cycle of recent years has continued to weigh on the labour market, with an unemployment rate expected to remain at elevated levels in 2026 before a moderate decline in 2027.

Outlook for industry and exports

For industry and exports, the outlook remains cautiously positive: according to economists, the global recovery, also driven by the AI boom, should progressively support foreign demand, with expected effects on the competitiveness of Austrian companies.

The Wifo-IHS forecasts come against a European backdrop in which the ECB maintains a cautious approach, with interest rates that, according to Schnabel, have not yet reached a truly restrictive level. The combination of still-elevated inflation and weak growth represents the main challenge for economic policy in the coming months.

According to the institutes, the recovery of the Austrian economy in 2025, after two years of recession, was more robust than expected, but prospects for 2026 remain conditioned by the stagnation expected in the central quarters of the year.

The economists concluded that, despite the downward revisions for 2027, the Austrian economy has sufficiently solid fundamentals to return to sustainable growth, provided that geopolitical tensions do not intensify further and inflation continues its path of return toward the ECB's target.