WIIW The Vienna Institute for International Economic Studies - Wiener Institut für Internationale Wirtschaftsvergleiche

Economic growth in 2025 could face several challenges, as the delayed formation of a government affects investor confidence and slows the inflow of FDI (despite a 4% year-on-year increase in Q1). Though parliamentary elections were held in February 2025, after more than four months parliament has still been unable to settle on a new government. The absence of a fully operational administration is reflected in the widening fiscal gap, with government expenditure surging by double digits, while revenue is barely growing. Inflation accelerated to 3.6% in May, driven by higher food and electricity prices, thus putting increased pressure on household budgets. The rate of unemployment is hovering at near to 11%, and joblessness is particularly affecting young people and women. Trade imbalances worsened in Q1: goods exports declined (for the first time since 2020), while imports surged at a double-digit rate, driving the current account deficit higher. Despite these challenges, services exports, remittances and primary income have supported growth: remittances rose by 4% to EUR 403m during the first four months of 2025, sustaining household incomes. If the deadlock surrounding the formation of a government persists, economic growth could ease to 3.9% in 2025 (slightly less than in 2024). Growth will mainly be driven by domestic demand, as downside risks from both domestic and global instability remain a concern.