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Austria’s economy showed initial signs of stabilization in the second half of 2025 after a prolonged period of weakness, according to a recent overview from UniCredit Bank Austria. Although service sectors, particularly domestic demand, trade, and tourism, contributed to the recovery, export-oriented industries and construction remained subdued.

“After two consecutive years of declines in GDP, the service sector drove an end to the recession in 2025 and a slight increase in Austria’s economic output by 0.5 percent,” explained UniCredit Bank Austria Chief Economist Stefan Bruckbauer. “Industry also contributed positively to the overall result, albeit with very different trends across branches, while construction output once again lagged behind the previous year.”

UniCredit Bank Austria economist Walter Pudschedl indicated that the domestic economy is currently on a cautious recovery path at the beginning of 2026. While business expectations regarding production and demand have improved, sentiment in the manufacturing sector remains below long-term averages. The service sector, however, is considerably more optimistic.

“Current survey values suggest a continuation of the domestic economic recovery in the coming months, although the pace is likely to remain modest,” Pudschedl stated. “The economic climate has generally improved and is already sunny or clearing in many sectors. In particular, the service sector and trade are supporting the recovery, benefiting from significantly lower inflation and looser monetary policy, which is also conducive to further stabilization in industry, while the situation in construction remains bleak.” He forecasts a 1.0 percent economic growth for 2026.

Despite a challenging economic environment, Austrian industry increased its real production by 3.1 percent in 2025. However, momentum slowed noticeably towards the end of the year, attributed to weak global demand and dampened investment willingness. The pharmaceutical industry, chemical production, metal processing, and the wood industry experienced above-average growth. Automotive production also saw a slight increase towards the end of the year. Conversely, other vehicle construction and the paper industry experienced significant declines. Mechanical engineering, a key Austrian industry, recorded production losses for the second consecutive year.

“Sentiment in the sector has improved at the start of the year, boosted by a more stable export environment. Although companies describe the order situation as very weak, production expectations have risen. Pessimism in industry is waning, and the economic situation is clearing in some branches,” Pudschedl explained. “Austrian industry should be able to follow a more stable recovery course in the coming months. The pace will remain moderate, but more sectors will benefit. Due to risks in exports, non-cyclical areas such as food production are at an advantage, while global challenges are likely to burden the steel industry, automotive manufacturing, and the pharmaceutical industry in the coming months.”

The construction sector continued to struggle, with production declining again at the end of 2025, resulting in a real decrease of 1.9 percent for the year. The sector showed significant disparities: while construction activity in new construction fell by 11.5 percent on average and the downward trend accelerated towards the end of the year, civil engineering saw a substantial increase of 14 percent. Preparatory construction work, building installations, and finishing trades experienced a 2 percent decline.

Prospects deteriorated around the turn of the year as the order situation worsened in all areas. The situation in civil engineering is expected to remain tense due to limited public budgets. However, the increasing number of building permits suggests that at least segments of new construction could recover in the future.

The labor market also reflects the strained situation, with the seasonally adjusted unemployment rate in the construction industry climbing to nearly 10 percent at the beginning of 2026. Nevertheless, more than 20 percent of companies continue to see a shortage of skilled workers as an impediment to their production. A lack of orders, cited by around a quarter of companies, remains the primary problem. Expectations surrounding the turn of the year have darkened, leading to a decline in employment and price expectations in the industry.

“The slump in construction, caused by the weakness in new construction, is set to continue for the time being. While the situation in civil engineering will turn into more challenging due to limited financial resources from the public sector in the coming months, the increased dynamics in building permits and financing at least offer hope for improvement in parts of new construction, particularly in residential construction. Growth prospects remain limited for 2026,” Pudschedl stated.

The service sector demonstrated overall stability in 2025, maintaining a moderate level despite continued high inflation and the associated loss of purchasing power in the second half of the year. Developments varied by sector, with increases in added value particularly in trade, gastronomy and hotels, the financial sector, and consumer-related services. Public administration also contributed positively to the overall development. Declines were recorded in more production-related service areas, including numerous business-related services, scientific and technical activities, and the transport sector.

“The business climate has brightened further at the beginning of 2026 and is assessed better by entrepreneurs than in the Eurozone. Demand expectations have been above the long-term average for several months. The sharp fall in inflation at the beginning of the year and the stabilization of the labor market should lead to a reduction in the high savings rate and offer improved conditions for the development of service industries in 2026. The service sector will thus be the driving component of higher economic growth in the current year 2026,” Pudschedl explained.

Retail trade – excluding petrol stations and the automotive sector – saw a noticeable slowdown in sales momentum in the second half of 2025, primarily due to rising inflation. However, a nominal sales increase of 2.9 percent was achieved thanks to a robust Christmas business. Adjusted for prices, this corresponded to an increase of only 0.7 percent, slightly below the real growth of 0.9 percent in 2024. The automotive trade, including workshops, developed much more positively, with a clear upward trend in the second half of the year, resulting in a nominal increase in sales of more than six percent and a real increase of over three percent for the year as a whole. This was mainly due to strong demand for vehicles: a total of almost 285,000 new cars were registered in 2025, an increase of 12.3 percent compared to the previous year.

“Business expectations in retail have improved again with the start of 2026 after a weakening at the end of the year, and the mood has also brightened in the automotive trade. There is now a slight optimism in both trading sectors,” Pudschedl said, adding, “We expect moderate growth in retail in the coming months, which should gain some momentum in the course of the year thanks to falling inflation and slight real wage gains. We expect an above-average good business development for the automotive trade. The high dynamics in new car business, which got off to an excellent start in January 2026 with a plus of 12.1 percent compared to the previous year, and a stable used car market support the positive outlook, although price expectations are waning.”