Deepening Recession with Rising Interest Rates and High Inflation

Austria's GDP contracted by 1.1 percent year-on-year in the second quarter of 2023. The further deterioration of sentiment indicators does not suggest an imminent turnaround. The inflation gap to the euro area increased again in August after a temporary decline. The domestic labour market is currently characterised by a strong expansion of foreign labour supply. Contrary to public perception, savings interest rates have risen more strongly than lending rates since the ECB's interest rate reversal. At the same time, domestic banks have been able to significantly increase their net interest income. This is partly due to the high share of variable-rate housing loans.