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.