Today’s forecast from Wifo and IHS: Recession is looming: economic researchers are massively scaling back expectations

Recently, economists have continually downgraded their economic forecasts for Austria. It is now nearly certain that the Austrian economy will face its second consecutive year of recession this year. At the beginning of September, Raiffeisen Research predicted a gross domestic product (GDP; overall economic output) decline of 0.5 percent for this year. By mid-September, the Oesterreichische Nationalbank (OeNB) had projected a GDP drop of 0.7 percent for 2024. Economists at Bank Austria also anticipate that a recession is likely this year. The previous week, Statistics Austria revised the economic decline for 2023 upward, indicating that the contraction was not 0.8 percent, but rather 1.0 percent.

Today, we are eagerly awaiting the release of the current autumn forecast from the two major institutes, Wifo and IHS. At the end of June, the economic researchers from Wifo and IHS had projected stagnation (0.0 percent growth) or a minimal increase of 0.3 percent in their quarterly economic forecast for 2024. Such optimism is unlikely to persist. Expectations for the coming year are also expected to be more pessimistic. Recently, Bank Austria reduced its GDP forecast for 2025 from 1.5 to 1 percent.

Budget deficit exceeds three percent

Meanwhile, the Finance Ministry has also raised its deficit forecast for the 2024 budget to 3.3 percent of GDP, surpassing the Maastricht limit of three percent. The causes include the lack of economic recovery, the uncertain impacts of the flood disaster, and the increase in the climate bonus, according to the department. In March, the deficit forecast was 2.9 percent.

The Fiscal Council has been discussing a deficit of 3.4 percent of GDP for some time. Both IHS and Wifo also did not expect Austria to remain below the three percent threshold.

According to the Finance Ministry’s forecast, the debt ratio is now 79.3 percent of GDP, slightly above the 2023 level of 77.8 percent. The GDP for 2024 is now projected to be significantly lower, partly due to a deteriorating economic outlook for 2024.

Austria’s Economic Landscape: Current Challenges and Predictions

Current Economic Situation

Recent analyses showcase a concerning trend in Austria’s economic forecast, as numerous economists have revised their predictions downwards. It is becoming increasingly evident that Austria’s economy may face a second consecutive year of recession. According to Raiffeisen Research, a decline in gross domestic product (GDP) of 0.5% is expected for this year, with the Oesterreichische Nationalbank (OeNB) estimating an even steeper decline of 0.7% for 2024. Furthermore, Bank Austria also aligns with this diagnosis, marking the likelihood of a recession impacting the economy in the coming months.

Statistics Austria has also adjusted its figures, moving from a projected decline of 0.8% to a more substantial contraction of 1.0% in economic output for this year. As we await the autumn forecasts from notable economic institutes such as Wifo and IHS, the economic outlook appears dim, with expectations of stagnation or minimal growth adjustments for 2024.

Revising Industry Predictions

The evolving economic landscape has led to significant adjustments in growth projections. Previously, Wifo and IHS anticipated a stagnation (0.0% growth) or a minimal increase of 0.3% for the domestic economy in 2024. However, these predictions are likely to be revised down again as economic conditions worsen. For instance, Bank Austria has reduced its GDP forecast for 2025 from 1.5% down to 1%.

Impact of the Budget Deficit

The ongoing economic challenges are also reflected in Austria’s budget forecast. The Finance Ministry has recently updated its deficit estimate for the 2024 budget, projecting it to reach 3.3% of GDP, exceeding the Maastricht limit of 3%. Contributing factors to this rise include:

• Lack of economic recovery
• The unpredictable impacts of the flood disaster
• Increases in the climate bonus

In March, the deficit forecast was pegged at 2.9%, but the Financial Council has maintained that the deficit could escalate to 3.4%. Both IHS and Wifo also harbor similar expectations regarding the budget deficit, indicating that compliance with the Maastricht framework remains uncertain.

Debt Ratio Insights

According to the updated forecasts, Austria’s debt ratio is projected to hit 79.3% of GDP in 2024, slightly above the 2023 figure of 77.8%. This increase in the debt ratio is compounded by the anticipated deterioration of the economic environment, which leads to lower GDP expectations. Below is a summary table showcasing the key economic indicators for Austria:

Indicator	2023 Forecast	2024 Forecast
GDP Growth Rate	-1.0%	-0.7%
Budget Deficit (% of GDP)	N/A	3.3%
Debt Ratio (% of GDP)	77.8%	79.3%

Sector-Specific Economic Impacts

The recession effects are not uniform across all sectors. Various industries have shown different resilience levels against the economic downturn. Critical sectors such as manufacturing and tourism are grappling with substantial declines, while other sectors, such as technology and renewable energy, continue to experience steady growth. Understanding how individual sectors are responding to this broader economic context can provide valuable insights into strategic planning for businesses and policymakers.

Benefits of Strategic Economic Planning

For Austria to navigate through the impending recession, a robust strategic economic plan is vital. Some benefits of strategic economic planning include:

• Enhanced Resilience: With a clear strategy, businesses can bolster their resilience against economic shocks.
• Resource Allocation: Efficient resource allocation becomes possible, enabling sectors that drive growth to receive necessary investments.
• Long-term Growth Path: Strategic economic planning facilitates a more sustainable growth trajectory by identifying and nurturing emerging sectors like renewable energy.

Practical Tips for Businesses

In light of the economic forecasts, businesses should consider implementing the following practical tips:

• Diversify Revenue Streams: Explore new markets and products to reduce dependency on stagnant sectors.
• Cost Management: Assess operational costs and implement efficient measures to maintain profitability.
• Invest in Innovation: Continued investment in technology can facilitate improved productivity and long-term growth even in slow periods.

Case Studies: Success Amidst Economic Challenges

Several Austrian companies have successfully navigated economic downturns by adapting their business models. For instance, a prominent Austrian tech startup increased its market share through innovative software solutions tailored for remote work as demand surged during economic slowdowns. This adaptability highlights that while the macroeconomic environment remains challenging, strategic foresight and flexibility in approach can lead to success even in tough times.

The Path Forward: Building Economic Stability

Austria’s economic path forward depends on the collaboration between the government, businesses, and institutions. Stakeholder engagement will be vital to implement actionable strategies that prioritize economic recovery and sustainability. As the upcoming forecasts are announced by Wifo and IHS, monitoring the situation closely will be crucial for all economic participants.