Clear Upward Revision of Investment Plans. Results of the WIFO Spring 2000 Investment Survey

According to the recent WIFO forecast, the Austrian Economy will achieve an extraordinarily high rate of real GDP growth of 3.5 percent in 2000. In 2001 real GDP will probably expand at a rate of 3.2 percent. The high growth performance is the result of booming demand in the European market and a relatively weak Euro, both leading to high Austrian export growth. Domestic demand is also growing faster thanks to the tax reform and changes in the system of family-related transfer payments ("Familienpaket"). In line with the development of the European manufacturing industry, Austrian manufacturing firms have responded very optimistically in the recent WIFO Business Survey. All seasonally adjusted indicators point to a continuation of growth throughout the rest of the year. However, the answers to the question regarding the business climate suggest that growth may not accelerate, but rather stagnate at a high level. In view of the pronounced optimism among Austrian firms, WIFO forecasts an increase of production by 6.3 percent for the year 2000 and 5.0 percent for 2001. Overall investment will increase by 4.3 percent in real terms in 2000. Given the large volume of investments (both domestically and from abroad), Austria appears to be very attractive as a business location and provides a favourable environment for investments. Besides strong internal demand, the tendency of unit labour costs to decrease relative to the most important trading partners (thanks to high productivity growth) continues. A high cash-flow in recent years and relatively low interest rates also contribute to the favourable investment climate. According to the recent WIFO Investment Survey (in collaboration with the EU/DG-ECFIN), Austrian manufacturing enterprises have revised their investment plans for 2000 significantly upwards and are now planning to invest ATS 96.5 billion, which corresponds to an increase by 19.6 percent. Although such plans usually do not fully materialise (as frequent revisions of recent years have shown), an increase by 15 percent is very likely. Investment growth is highest in the fields of consumer durables (36.9 percent), transport equipment investment (36.5 percent) and goods (34.0 percent). In 1999 demand was rather weak in the construction sector, especially in the area of new housing construction and civil engineering. Nevertheless, some firms revised their original investment plans for 1999 upwards, so that the most recent investment survey for 1999 points to an estimated increase by 18 percent. In 2000, there are signs of increasing demand in certain sectors (non-residential renovation of existing building stock), with enterprises intending to invest about ATS 7.9 billion, which corresponds to a nominal increase of 5 percent. Electric utilities are undergoing a deep restructuring process in response to the liberalisation of the electricity market. A further reduction of investments by 4.4 percent is to be expected for 2000, the biggest cuts – as in 1999 – being made by the "Verbundkonzern", the largest electricity company in Austria. Transport enterprises and other utilities (gas, water) intend to step up their investments by 12.7 percent in 2000.