Austria's Strategies For Navigating Inflation Challenges

Austria has a history of dealing with inflation. The country was born into inflation in 1918, which was eventually brought to an end in the early 1920s by a radical currency reform and other measures, such as international loans under the auspices of the League of Nations. Following World War II, inflation reappeared in Austria, which was suffering from an abundance of money and a shortage of goods. In 2024, Austria's expansionary fiscal stance is expected to become broadly neutral over the forecast horizon, with tax revenues projected to grow more moderately due to easing inflation.

The Austrian economy is currently in recession

Austria's current economic forecast predicts a rise in the general government deficit to 3.7% of GDP in 2025, driven by increased spending on pensions and social benefits. The government debt ratio is also expected to increase to above 80% over the forecast horizon. At the same time, tax revenues are projected to grow more moderately, due to easing inflation.

The prolonged recession is affecting the labour market, with the unemployment rate expected to increase from 5.1% in 2023 to 5.3% in 2024 and 2025. Nominal wages are forecast to increase by 7.5% in 2024 and 3.8% in 2025, driven by past inflation developments.

Following World War II, Austria experienced inflation due to an abundance of money and a shortage of goods. This was addressed by stopping the inflow of additional reichsmarks across open frontiers.

Inflation is expected to ease

Austria has a history of dealing with inflation, including a period of runaway inflation after World War I that was eventually curbed in the early 1920s through radical currency reform and international loans. Following World War II, the country again faced inflation due to an abundance of money and a shortage of goods, as well as the inflow of additional currency across open frontiers.

To address inflation, the Austrian government has implemented various measures over the years. In the early 1920s, a radical currency reform was introduced, including the schilling as a new currency unit. This was accompanied by international loans under the League of Nations.

Looking forward, the Austrian government is expected to continue monitoring and addressing inflation through fiscal and monetary policies. The country's economic forecast suggests that inflation will ease, contributing to moderate growth in tax revenues. However, the government's expansionary fiscal stance and increasing government deficit may impact the debt-to-GDP ratio.

Overall, while Austria has faced challenges with inflation in the past, the current outlook suggests that inflation will ease, and the government is taking steps to manage economic conditions.

The government deficit is projected to rise

In 2025, the general government deficit is projected to rise to 3.7% of GDP, due to increased spending on pensions and social benefits. This is expected to decline to 3.5% in 2026. Tax revenues are projected to grow more moderately over the forecast horizon due to easing inflation. Austria’s expansionary fiscal stance in 2024 is expected to become broadly neutral over the forecast horizon. The development of the government deficit is projected to drive the debt-to-GDP ratio upwards. The government debt ratio, at 78.6% of GDP in 2023, is expected to increase to above 80% over the forecast horizon.

Austria has a history of dealing with inflation. The country was born into inflation in 1918, with the Republic suffering from an abundance of money and a shortage of goods. Runaway inflation was brought to an end in the early 1920s by a radical currency reform, including the introduction of the schilling as a new currency unit, and other measures such as international loans under the auspices of the League of Nations.

Following World War II, inflation reappeared in Austria. This was due to large demand and savings deposits (reflecting the combined results of war financing and rationing), as well as large amounts of currency in circulation, consisting mainly of reichsmarks and partly of military schillings issued by the Allied authorities.

Austria's current prolonged recession is affecting the labour market, albeit only moderately. The unemployment rate is expected to increase from 5.1% in 2023 to 5.3% in 2024 and 2025. Following the anticipated economic recovery, it is projected to decrease again in 2026, to 5.1%. The increase in the unemployment rate is mitigated by large cohorts reaching retirement age.

The unemployment rate is expected to increase

Runaway inflation in Austria was brought to an end in the early 1920s by a radical currency reform, including the introduction of the schilling as a new currency unit. Other measures included international loans under the auspices of the League of Nations.

Austria's expansionary fiscal stance in 2024 is expected to become broadly neutral over the forecast horizon. The development of the government deficit is projected to drive the debt-to-GDP ratio upwards. The government debt ratio, at 78.6% of GDP in 2023, is expected to increase to above 80% over the forecast horizon.

Wages are expected to increase

Austria has a history of dealing with inflation. After World War I, the country was born into inflation, which was eventually brought to an end in the early 1920s by a radical currency reform and other measures, such as international loans under the auspices of the League of Nations.

Following World War II, inflation reappeared in Austria due to an abundance of money and a shortage of goods. Large demand and savings deposits had been accumulated, and there were large amounts of currency in circulation, consisting mainly of reichsmarks and military schillings.

Currently, Austria is experiencing a prolonged recession, which is affecting the labour market. Nominal wages are expected to increase by 7.5% in 2024 and 3.8% in 2025, driven by past inflation developments. This increase in wages is occurring despite an anticipated rise in the unemployment rate, which is projected to increase from 5.1% in 2023 to 5.3% in 2024 and remain elevated in 2025. The increase in the unemployment rate is mitigated by large cohorts reaching retirement age, and the labour supply is still increasing moderately due to migration and the gradual alignment of women's statutory retirement age with men's.

Additionally, the Austrian government's expansionary fiscal stance in 2024 is expected to become broadly neutral over the forecast horizon, with tax revenues projected to grow more moderately due to easing inflation. However, the development of the government deficit is projected to drive the debt-to-GDP ratio upwards, with the government debt ratio expected to increase to above 80% over the forecast horizon.

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