Economy performs worse than previously estimated in Q4

The economy remains in recession: According to a second release, GDP declined 0.4% on a seasonally adjusted quarter-on-quarter basis in Q4, worsening from the 0.2% contraction tallied in Q3. Q4’s reading came in below the flash estimate of flat activity and was among the weakest in the Euro area. On an annual basis, GDP contracted 0.9% in Q4 (Q3: -1.1% yoy), posting the best result since Q1 2023 but marking the seventh consecutive quarter of contraction. As a result, the economy remained in recession for the second successive year, with GDP contracting 1.3% in 2024 as a whole (2023: -0.9%), the worst contraction since 2009 when excluding the pandemic-induced downturn.

Exports weigh on the quarterly reading: Domestically, household spending gained some steam, growing 0.3% in seasonally adjusted quarter-on-quarter terms in Q4, improving from Q3’s flat reading and bolstered by low inflation and unemployment. Moreover, fixed investment rebounded after three quarters of contraction, with growth hitting an over two-year high of 0.4% in the fourth quarter (Q3: -0.7% qoq s.a.), buttressed by the ECB’s easing cycle. Additionally, government consumption growth remained stable at Q3’s 0.5% in Q4. On the external front, exports of goods and services contracted 2.9% in Q4 (Q3: -0.1% qoq s.a.), the worst reading since Q2 2023 and hampered by sluggish momentum in Germany. In addition, imports of goods and services contracted 2.0% in Q4 (Q3: +1.4% qoq s.a.).

Economic growth to return in 2025: Our panel has penciled in a mild economic uptick for Q1 2025 as laxer borrowing conditions and low inflation should support domestic demand. In 2025 as a whole, our Consensus is for the economy to return to growth after two years of recession: Accelerating private spending, rebounding fixed investment and less downbeat exports, will drive the reading. A weaker-than-expected recovery in the German industrial sector is a downside risk.

Panelist insight: Commenting on the outlook, Walter Pudschedl, analyst at UniCredit, stated: “Due to the more favorable framework conditions, supported by real wage growth and the easing of monetary policy, a slight upward trend should begin in the course of 2025.” Moreover, EIU analysts said: “Austria's growth outlook is reliant on Germany's industrial performance. This is due to the two countries' closely integrated industrial sectors, whereby a poor German industrial performance affects Austria's manufacturing exports. This will remain a challenge in 2025, especially given US trade policy.”

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