The Austrian Economy in 2007: Business Cycle Reaches Its Peak

In 2007 the Austrian economy has expanded by 3.4 percent. This was the second year in a row of GDP growing by more than 3 percent. The impetus came from exports again with goods as well as services showing vivid growth rates. Investment demand accelerated in 2007 but lagged behind the dynamism usually seen during phases of economic upswing. Gross capital formation advanced by 4.8 percent in real terms. Contrary to 2006, this time investment growth of equipments (machines and vehicles) outperformed those of constructions. Private household consumption again developed untypically weak for this phase of business cycle. Subdue wage development and heading up inflation eroded personal income which allowed private consumption to expand only by a mere 1.4 percent. Annual inflation rate reached just 2.2 percent in 2007, but considerably gained momentum towards the end of the year. Soaring prices for agricultural products and fuel were the main driver of this development. Labour market variables again profited substantially from the brisk economic performance with unemployment falling further and employment expanding swiftly.