Domestic Demand Lending Stronger Support to Growth

Since the beginning of this year economic growth has gained momentum. Real GDP in the first quarter rose 2¼percent seasonally adjusted, the highest rate in nine years. Latest indicators suggest activity remained strong until mid-year. Industrial output is 7 percent higher than a year ago. The latest pick up of domestic investment provides a broader base for further production gains. The backlog of orders is more than 20 percent higher than in mid-1988, with domestic orders up almost 40 percent. Merchandise exports in the first half of 1989 increased 15% year-on-year, the latest monthly figures confirm the rising trend. Receipts from foreign tourism have also expanded at double-digit rates. The favourable business climate in Europe is conducive to higher travel spending and Austria may regain market shares in the summer season due to comparatively favourable environmental conditions. Inflation is rising at a slow pace, driven more by imported raw materials than by labour costs. The trade gap is widening because of lively domestic demand and slightly worsening terms-of-trade. However, rising net returns from tourism keep the current account in equilibrium. In spite of lively demand for labour unemployment has fallen at a slower pace in recent months.