Austria central bank cuts 2025 growth forecast on energy price, tariff concerns

By Rachel More

BERLIN, March 25 (Reuters) - Austrian gross domestic product is expected to contract by 0.1% in 2025, the central bank said on Tuesday, cutting its forecast from 0.8% in December, as the economy faces a budget deficit, high energy prices and the threat of U.S. tariffs.

"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 expects the economy to improve slightly, growing 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.

"U.S. President (Donald) Trump's threat to impose tariffs poses further risks to growth and inflation. By contrast, Germany's economic stimulus package could lead to positive growth effects," the central bank 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 country is also working on securing reliable sources of energy since weaning itself off Russian gas during a rapid shake-up of natural gas supplies late last year.

Energy price pressures risk slowing the fall of inflation in Austria, which Holzmann said was approaching the European Central Bank's 2% target at a slower rate than other euro zone economies.

The ONB forecasts inflation of 2.9% in 2025.