Austrian economy will grow but weighed down by stubborn inflation -central bank

VIENNA, June 16 (Reuters) – Austria’s economy will definitely grow slightly this year but inflation will remain stubbornly high well into next year, when it will still come in at more than twice the European Central Bank’s target, the Austrian National Bank (ONB) said on Friday.

While the ONB has been forecasting so-called stagflation for some time, Austrian inflation is proving more stubborn than previously expected and well above the euro zone average.

In its half-yearly economic forecast, the central bank trimmed its prediction for gross domestic product growth this year slightly to 0.5%, from 0.6% in December.

Inflation according to the harmonised index of consumer prices (HICP), however, is expected to be 7.4% this year, higher than the 6.5% predicted six months ago and the current euro zone inflation rate of 6.1%, even as the ECB keeps raising interest rates to bring that figure towards its 2% target.

“There is currently no risk of a recession in Austria for 2023 as a whole,” the ONB said in a statement, meaning GDP would not shrink over the full year.

A return to noticeable growth is expected in the second half of this year as other countries’ economies recover and inflation eases, it added.

“While energy prices are not expected to make a significant contribution (to inflation), inflation in the service sector is fading only slowly,” the ONB said.

HICP inflation next year is now expected to come in at 4.1%.