Investment in Austria

Austria - Investment

Economy contracts in third quarter on the back of muted foreign demand

The Austrian economy contracted 0.1% quarter on quarter in Q3, swinging from the sturdy 1.9% expansion logged in Q2. On an annual basis, economic growth came in at 1.8% in the third quarter, markedly down from the Q2’s 6.2% increase.

The quarterly contraction reflected flatlining government consumption growth (Q2: +2.7% qoq) and a drop in fixed investment (Q3: -0.3% qoq; Q2: -1.3% qoq). Capital outlays were likely affected by depressed business confidence amid a bleaker economic backdrop due to the war in Ukraine and elevated price pressures. More positively, household spending expanded 0.6% over the prior period, swinging from the second quarter’s 0.6% contraction. Private consumption rebounded despite record-low consumer sentiment and inflation eroding real incomes.

On the external front, exports of goods and services fell 3.5% quarter on quarter (Q2: +5.8% qoq), while imports of goods and services contracted 1.1% (Q2: -0.1% qoq). Softening economic momentum in Germany, a key export market for Austria, weighed on the external sector.

Looking ahead, the economy is expected to enter a recession over the winter months. International sanctions on Russia, supply chain problems, softer demand from Germany and other European markets, as well as high commodity prices, will weigh on the industrial sector. More positively, a tighter labor market and the government’s third fiscal relief package—announced in mid-June—should provide some respite for the economy, although the balance of risks is clearly skewed to the downside.

Margarita Grushanina, analyst at Erste Bank, added:

“We expect the slowdown of the economy to continue in the coming quarters. […] Investment activity suffers from the very high uncertainty, still persistent supply chain bottlenecks and the weakening of foreign trade. A continuing decline is expected in exports, as the expectations for economic growth among Austria’s major trading partners has been significantly lowered.”

FocusEconomics panelists project that the economy will expand 0.1% in 2023, which is down 0.4 percentage points from last month’s estimate. For 2024, panelists expect the economy to grow 1.6%.