A dramatic increase in bark-beetle (Ips typographus) damage in Norway spruce (Picea abies (L.) Karst.) forests occured in the provinces Upper and Lower Austria in the past decade with the beetle outbreak likely driven by climate change. Water shortage in the early growing season appears to weaken the forests. The high supply of beetle-infested timber is reducing wood prices and forests are not meeting policy expectations for a viable bioeconomy. The sink strength of forests has diminished from 12% to 6% of the national greenhouse gas emission budget and may even turn into a source when the disturbance dynamics continue. Consequences cascade through the forest sector. The regional market price for bark-beetle affected timber declined to 30% of the previous level. Small-forest owners who obtain a marginal income from wood products are losing motivation for active forest management. The operational difficulties of cutting affected trees combined with the organization of timber transport to saw-mills are being met by excessive inventories of unprocessed logs at mills. Large forest enterprises can only intermittently absorb higher costs for forest management than be met currently from sales of products. The long-term consequence is lasting reduction of forest productivity and an uncertain future for forestry in Central Europe that may increasingly depend on technological breakthroughs in processing timber from deciduous trees and eventually payments for ecosystem services.