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Despite the weak outlook, Austria's credit rating remains stable

Despite the weak outlook, Austria's credit rating remains stable

According to the Fitch rating agency, the macroeconomic outlook for the Austrian economy remains weak. The Austrian economy contracted by 0.7 percent in 2023, and Fitch expects only a moderate recovery of 0.7 percent in 2024. The latest assessment shows that Austria is exposed to higher inflationary pressures than other eurozone countries, has a high national debt and increased political uncertainty due to elections in autumn.

Second best possible value

However, Austria's credit rating for long-term foreign currency bonds remains affirmed at the second best possible value of 'AA+', and the outlook also remains stable. Fitch sees limited energy supply risks, a resilient banking sector, and low private household debt in Austria. Although the non-performing loan ratio in the banking sector rose to 1.8 percent at the end of the third quarter of 2023, it remains below the pre-pandemic level of 2.2 percent at the end of 2019.

Inflation pressure remains high

Inflationary pressures in Austria have been more persistent compared to other euro area economies. “HICP inflation was more than two percentage points higher than the euro area average in 2023 (7.7 percent versus 5.5 percent), reflecting higher relative wage growth and an increased weight of hyperinflationary components in the Austrian inflation basket.” “, the rating agency wrote in its country assessment. .

Export growth remains slow

Overall inflation is expected to average 3.7 percent this year and three percent in 2025. GDP growth is expected to rise to 1.5 percent in 2025 as investment and export activity recover. However, for 2024, investment is expected to remain weak and the contribution of net exports to be negative as export growth remains sluggish amid a weak recovery in Germany, Austria's main trading partner.

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The budget deficit is shrinking slightly

Fitch assumes that Austria's budget deficit will decline slightly from 2.5 percent in 2023 to 2.3 percent in 2024 and 2025. This represents an upward revision from expectations of 1.5 percent and 1.3 percent, respectively, at the last review in August 2023, which Fitch said reflects weak growth and increased spending.

Fitch expects the national debt to fall below 76 percent of GDP by the end of 2025, after 83 percent in 2020. However, it is still well above the “AA” average of 48.4 percent. . The rating agency also points to public finances as a risk factor that could lead to a negative rating or downgrade if it fails to reduce debt in the medium term.