Iran War Slows Economic Growth
The disruptions caused by the Iran war are slowing the economy. As a result, the
recovery of the Austrian economy is turning out to be significantly weaker than had
been indicated at the end of February. Against the backdrop of the current energy
price shock, the Institute for Advanced Studies is revising its forecast for economic
growth in 2026 and 2027 down to 0.5 % and 0.8 %, respectively. From the 2.0 % recorded
at the beginning of the year, the inflation rate is expected to rise to 2.9 % in
2026. In the coming year, it is forecast to remain at 2.4 %, above the European Central
Bank’s 2 % target. With an unemployment rate of 7.5 % and 7.4 %, respectively, the
labor market situation is expected to remain virtually unchanged. IHS expects a
budget deficit of 4.2 % of GDP this year, and 4.1 % for the coming year. Without the
war in Iran, the Austrian economy would grow by 0.5 and 0.3 percentage points more
in 2026 and 2027, respectively. Inflation would be 0.9 and 0.2 percentage points
lower, respectively.