Outlook for 1989 and 1990: Good Prospects for Business Climate and Investment

After a temporary halt the business cycle will resume its upward trend. Firms in manufacturing industry still have a comfortable stock of outstanding orders with little spare production capacity left. However, the effect of higher interest rates is likely to slow the expansion of activity abroad and of international trade. Price competitiveness of Austrian exports is unlikely to increase much further and the stimulus to consumption from the tax reform is going to wear off. Therefore, as in the earlier forecast, GDP growth is seen to come down gradually from an average 4 percent in 1989 to 3 percent in 1990. Because of higher stockbuilding total domestic demand will rise unabated. At current import propensities the foreign sector real balance will be marginally negative. Assuming broadly unchanged terms of trade the current account forecast yields a small deficit of AS 7 billion. The greater part of the deterioration in the trade balance will again be compensated by higher net revenues from tourism. While in 1989 consumer prices were boosted by higher import prices of raw materials, wages and salaries will add to inflation in 1990. The number of employees is expected to increase by 30,000 (+1 percent). As the supply of labour, particularly of foreigners, is very elastic registered unemployment is expected to fall insignificantly to a rate of 4.9 percent of the dependent labour force.