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The economy in Austria is shrinking by 0.4 percent this year

The economy in Austria is shrinking by 0.4 percent this year
The OECD is forecasting a rate of 7.7 percent for inflation this year.
Image: APA/DPA/Marcus Brandt

In June, the Organization for Economic Cooperation and Development (OECD) had predicted growth of just 0.2 percent, but now it sees the domestic economy shrinking by 0.4 percent. In the following two years things will only improve slowly; the OECD sees growth of 0.6 percent for 2024 and an increase of 1.5 percent for 2025.

The OECD is forecasting a rate of 7.7 percent for inflation this year. For the next two years, she sees significantly lower inflation rates of 3.9 percent (2024) and 2.5 percent (2025).

High inflation puts pressure on consumption

High inflation is putting pressure on consumption this year, while high interest rates and a labor shortage are dampening investments, writes the OECD in its forecast published on Wednesday. In addition, demand has weakened. However, higher real wages are likely to support consumption again in the coming years. Meanwhile, investment could continue to weaken due to higher borrowing and labor costs. The weaker global environment is also likely to dampen export demand.

When it comes to public finances, the OECD expects only a slight decline in the budget deficit from the expected 2.6 percent for this year to 2.5 percent in 2024 and 2025. The Covid support from previous years has largely already expired and the aid, to mitigate high inflation, are likely to come to an end next year. However, these reductions in spending would be offset by, among other things, higher social spending and increasing debt service.

The aging population will also put pressure on government finances. According to the OECD, the associated government spending will increase by 1 percent of gross domestic product (GDP) by 2030. The organization even expects an increase of 7 percent of GDP by 2060. A sustainable budget path requires structural reforms of the pension system, according to the OECD. Increasing the employment rate would also support the state budget.

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