IMF Executive Board Concludes 2025 Article IV Consultation with Austria

IMF News, July 3, 2025

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Austria experienced two successive years of recession driven by the energy-price shock and euro-area monetary tightening.
Growth outlook:
- Growth remains weak for 2025, reflecting planned fiscal consolidation and heightened global trade barriers and trade policy uncertainty.
- GDP is expected to recover more strongly from 2026 onwards under the baseline scenario.
Inflation:
- Inflation at around 3 percent year-on-year still exceeds inflation in the euro area by about 1 percentage point.
- Sticky services inflation and the lapsing of energy price relief policies caused headline inflation to rise.
- Inflation in 2025Q1 still well exceeds the euro-area average and is only expected to close the gap gradually by end-2026.
Risks to the outlook:
- Downside risks predominate: increased global trade policy uncertainty and protracted weak sentiment.
- Upside risks: faster-than-expected rebound in private demand or easing of global trade tensions.

2024 fiscal and debt developments:
- Fiscal deficit widened to 4.7 percent of GDP in 2024.
- Public debt increased to 81 percent of GDP in 2024.
Near-term measures:
- The government’s announced fiscal measures for 2025 are expected to lower the deficit and are sufficient for 2025 given the weak economy.
- If near-term downside risks materialize, authorities should let automatic stabilizers operate freely and deploy measures to protect the most vulnerable in a severe downturn.
Medium-term fiscal recommendations:
- Aim to cut the deficit to below 2 percent of GDP to put the debt ratio on a declining path.
- Consider a combination of:
- Gradually reducing pension replacement rates (noted as among the highest in the EU).
- Limiting public-sector wage increases.
- Increasing health-care spending efficiency.
- Eliminating environmentally harmful subsidies.
- Greater reliance on property, inheritance, gift, and excise taxes (described as somewhat low in Austria compared to the European average).
- Gradually increasing the national carbon price to generate fiscal resources, prepare for anticipated higher carbon prices under EU ETS2, and encourage efficient carbon mitigation.

Labor supply and participation:
- Boosting labor supply by narrowing the gap in full-time work by females and in labor force participation among elderly workers relative to the EU average could offset more than 20 years of demographic aging in terms of the effect on GDP.
- Recommended measures include:
- Deepening efforts to provide more childcare by further expanding childcare and eldercare facilities.
- Undertaking pension reforms that incentivize longer working lives.
- Continuing efforts to better integrate immigrants into the workforce.
Regulatory and market reforms:
- Cut red tape in services sectors where regulatory barriers remain high.
- Speed approval of renewable energy projects.
- Reduce regulatory bottlenecks in housing supply, including by easing land-use regulations.
- Promote capital market finance for firms, especially equity financing for young firms, and strengthen ecosystems of collaboration between academia and industry.
EU Single Market:
- Deepening the EU Single Market and reducing intra-EU trade barriers are critical to improving productivity and growth.
- Suggested reforms include Savings and Investment Union and a well-designed common 28th corporate regime to harmonize rules for businesses operating across jurisdictions.
- Further energy market integration within the EU would help reduce the level and variability of energy costs.

Overall assessment:
- The financial sector remains healthy and macroprudential policies are broadly appropriate, but continued vigilance on potential credit risks is warranted.
Credit risks and bank resilience:
- Banks face potential credit risks from nonfinancial corporates affected by global trade barriers and trade policy uncertainty.
- Authorities should encourage conservative collateral valuation, adequate risk provisions, and prudence in profit distributions to build resilience and invest in cyber and other infrastructure.
Residential real estate and borrower-based measures:
- Borrower-based measures for residential real estate lending are set to lapse in July 2025; the new government should consider legislation to adopt these measures as permanent instruments.
- Supervisors should monitor adherence to proposed lending guidelines replacing the borrower-based measures.
Commercial real estate (CRE) and buffers:
- Introduction of the SSyRB set at 1 percent of CRE assets is welcomed.
- Authorities should continue efforts to close macroprudential CRE data gaps.
- The current setting of the CCyB at zero is appropriate given weak credit growth.
Recommendations:
- Implement outstanding recommendations from IMF staff’s 2020 Financial System Stability Assessment to strengthen oversight and safety mechanisms.

Employment — Unemployment (Harmonized) (%):
- 2022: 4.7
- 2023: 5.1
- 2024: 5.6
- 2025 (Proj.): 5.5

Press Release No. 25/237, July 3, 2025 — International Monetary Fund.