Austria: Austrian economy experiences second year of recession

After a recession in 2023, the Austrian economy has not shown signs of recovery in 2024 yet. Private consumption and fixed gross capital formation are well below their levels of last year in the quarters to date. Therefore, we expect the Austrian economy to shrink in 2024. Inflation is further declining. This is partly due to price-dampening energy prices, but also to moderately rising food prices. However, inflation in the services sector, supported by wage increases, is likely to keep core inflation on an elevated level and in turn overall inflation is expected to remain above the eurozone average this year.

At the October meeting, the ECB Governing Council lowered the key interest rate by 25 basis points. The incoming data shows that inflation falls in line with their forecasts, allowing further rate cuts at their next meetings. Yields on German government bonds are slightly below their September levels. In contrast, yields on 10-year Austrian government bonds fell sharply compared to the levels of September. We expect the risk premium compared to German government bonds to fall further, partly due to positive rating reports.  

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