Austria Economic Outlook
In line with FocusEconomics panelists’ expectations, the economy shrank 0.3% sequentially in Q1 (Q4: 0.0% s.a. qoq). Contractions in government expenditure and exports more than outweighed growth in private consumption and investment. On a sectorial level, the service sector’s soft performance drove the slowdown. Looking at Q2, available data has been downbeat. April’s business confidence and manufacturing PMI readings were below Q1’s averages. Consumer confidence was broadly in line with Q1’s average, remaining in negative territory. Additionally, ECB rate hikes are likely hurting investment and construction activity this quarter. In contrast, household consumption should be buoying activity, supported by declining inflation on average in Q2 relative to Q1.
Harmonized inflation increased to 9.5% in April, up from 9.2% in March, due to higher price pressures for housing and utilities. Inflation should decline going forward due to the pass-through of lower wholesale energy prices but is set to remain above the ECB’s 2.0% target as a result of wage increases. A gas embargo by Russia is an upside risk to the outlook.