Austrian central bank expects less growth, more inflation due to Iran war

VIENNA, March 24 (Reuters) - Austria's central bank expects less economic growth and more inflation in Austria because of the knock-on effects of the Israeli and U.S. attacks on Iran, particularly on oil prices, it said on Tuesday as it published revised forecasts.

The Austrian National Bank (ONB) trimmed its gross domestic product growth forecast for this year, last published in December, by 0.3 percentage points to 0.5%, and increased its inflation forecast for 2026 according to the harmonized index of consumer prices (HICP) by the same amount to 2.7%.

"Emerging from a two-year recession, the Austrian economy again expanded at a moderate 0.7% in 2025. Growth remained positive at the beginning of 2026, with recent monthly data available for both January and February indicating robust growth developments," it said.

"However, the outbreak of the war in the Middle East on February 28, 2026, and the subsequent marked rise in energy prices have again caused great uncertainty, significantly clouding the economic outlook," it added.

ONB Governor Martin Kocher said two weeks ago his central bank was looking at different scenarios in terms of the war's economic impact, with the main factor being how long it lasts.

The ONB's current forecasts are based on market expectations that global commodity prices will "drop relatively quickly" in the second half of 2026, it said.

"We expect inflation in Austria to climb to just over 3.0% until May 2026, before dropping to about 2.5% until the end of the year," it said, adding that uncertainty remains high.

"Should things take a particularly unfavorable turn – if, e.g., higher risk premiums, continued high geopolitical uncertainties, weaker export demand and rising fertilizer prices were to materialize – this might send Austria into a mild recession in 2026. Economic output would contract by 0.2%, while HICP inflation would go up to 4.2%," it said.