Austria's central bank now expects 0.1% contraction in 2025, warns of challenges

BERLIN, March 25 (Reuters) - Austrian gross domestic product is expected to contract by 0.1% in 2025, the country's central bank said on Tuesday, listing a high budget deficit as one of the challenges faced by the economy this year.

In December, the ONB central bank had forecast 0.8% growth in 2025.

"The Austrian economy seems to have bottomed out and is expected to stabilize in 2025," ONB governor Robert Holzmann said in a statement, adding that a noticeable recovery would only begin in the second half of the year.

In 2026 and 2027, the central bank sees the economy returning to growth rates of 1.2%.

At an expected 3.8% of GDP, Austria's budget deficit this year is expected to exceed a threshold of 3% set by EU borrowing rules, the ONB said.

Austria's new coalition government has vowed to tackle the swollen budget deficit and lift the economy after two consecutive years of decline.

The ONB listed high household energy prices and tariff threats under U.S. President Donald Trump as additional challenges, but sees a potential boost from a planned spending surge in neighbouring Germany.