Austria's economy is projected to shrink slightly in 2025, with the country's central bank forecasting a 0.1% contraction, citing a high budget deficit as a key challenge.

This marks a sharp downgrade from the 0.8% growth the Austrian National Bank (ONB) had predicted in December.

“The Austrian economy seems to have bottomed out and is expected to stabilise in 2025,” according to ONB governor Robert Holzmann in a statement.

However, he noted that any significant recovery is unlikely before the latter half of the year. Looking further ahead, the central bank expects economic growth to rebound, reaching 1.2% in both 2026 and 2027, Reuters news agency reports.

Furthermore, Austria’s budget deficit is projected to reach 3.8% of its gross domestic product in 2025, surpassing the 3% threshold established by the European Union’s borrowing regulations, according to a report from the Austrian National Bank.

This breach of EU fiscal limits underscores the financial strain on the country’s economy, adding to concerns about long-term fiscal sustainability.

In response to the growing economic challenges, Austria’s newly formed coalition government has pledged to take decisive action to reduce the country’s budget deficit and stimulate economic growth.

Following two consecutive years of economic contraction, government leaders have acknowledged the urgent need for structural reforms and policy measures aimed at stabilising public finances while fostering investment and job creation.

Officials have indicated that addressing the budget shortfall will require a combination of spending cuts, revenue-enhancing strategies, and policies designed to improve overall economic resilience.

The ONB identified rising household energy costs and the risk of trade tariffs linked to US President Donald Trump’s policies as additional economic challenges.

However, the central bank also noted that Austria could benefit from a planned increase in government spending in neighbouring Germany, which may provide a positive economic stimulus.