Austria Economic Outlook
In the second quarter, the economy contracted 0.4% in seasonally adjusted quarterly terms, contrasting the 0.1% expansion in Q1. Weaker private consumption, fixed investment and exports drove the reading. Looking ahead, the economy is expected to slow in Q3 amid the lagged effects of the ECB’s rate hikes and soft momentum abroad. The industrial sector appears to be in the doldrums: The manufacturing PMI for July was lower than Q2’s average and well in contractionary terrain. Moreover, weak momentum in construction and related sectors is likely to persist into Q3 due to higher real estate prices, stricter lending regulations and higher rates. On a positive note, a decrease in inflation and improved consumer sentiment in July, together with pent-up demand for travel and leisure, should be supporting the services sector in particular and household consumption in general.
Harmonized inflation decreased to 7.0% in July (June: 7.8%) due to broad-based declines in key subsectors. Inflation should decline from current levels later in 2023 but remain above the ECB’s 2.0% target, buoyed by strong nominal wage increases. Stickier-than-expected core inflation and a stronger-than-anticipated tourism season are upside risks.