Image: dpa/Christin Klose
The ongoing weakness in demand in the manufacturing sector has now also affected the service sector. However, a moderate recovery with economic growth of 0.9 percent is forecast for 2024, and inflation is likely to decline. High inflation has weighed on consumers’ purchasing power, leading to reduced demand in the services sector, the analysis said. “The deterioration in sentiment in the service sector had the strongest influence on the renewed decline in the UniCredit Bank Austria economic indicator in September, significantly impacted by the further deterioration in consumer sentiment,” explained Bank Austria chief economist Stefan Bruckbauer. Despite concerns about wage and energy costs, there is a slight improvement in global industrial sentiment, indicating a possible stabilization of the economic situation.
After the decline in economic output in the second quarter, the downward trend of the economic indicator in recent months points to a continuation of the downward trend in the third quarter, “so that the Austrian economy could have been in a slight recession since the spring,” explained Bank Austria economist Walter Pudschedl. However, he remains optimistic for 2024, when falling inflation should allow a moderate recovery.
The labor market is expected to continue to deteriorate until spring 2024
The labor market is expected to continue to deteriorate into spring 2024, but the unemployment rate should remain stable at an average of 6.4 percent. Inflation is expected to fall from an average of 7.8 percent in 2023 to 3.6 percent in 2024.
Geopolitical tensions in the Middle East could pose short-term risks, but the conflict is expected to be limited and therefore have little impact on inflation. “In our base scenario, we continue to assume that the interest rate cap in the euro area has now been reached and that key interest rates will be gradually reduced from the second half of 2024,” emphasized Bruckbauer, despite a possible increase in oil prices in the event of an escalation in the Middle East.
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