More Favorable Cyclical Indicators

At the beginning of the year production picked up again, mainly as a result of the increase in foreign orders. Clement weather conditions and the early Easter in March stimulated business activity in the construction sector. Seasonal factors strengthened the positive development in the labor market. In Austria, the recovery, which set in at the end of 1993, continued into the first quarter of 1994. The upturn is driven by a rise in foreign orders and a revival in domestic demand. The international economy continues to benefit from the robust upswing in the U.S. The somewhat restrictive course of the Federal Reserve has not yet hurt the economic expansion in the United States. The pickup in domestic demand has now been followed by an increase in foreign trade. The unemployment rate dropped substantially, however, without intensifying inflationary pressures. In Europe, the fledgling upturn has not yet gained momentum. The relatively high interest level, a restrictive fiscal policy, the depressed state of the labor market, and the flat development of incomes stand in the way of a more pronounced upswing. Nonetheless, the business climate improved in a number of European countries in 1994. The situation in Germany remains unclear. The rise in foreign orders accelerated during the first few months of 1994, with the result that activity in the whole economy stabilized. But private consumption remains weak. The future development in Germany will depend on whether the growth in exports and a further decline in interest rates will suffice to stimulated investment activity despite the slack in consumer expenditures. In their joint report, the German institutes for economic research forecast a growth in real GDP of 1.5 percent for 1994 (West Germany 1 percent). Strong domestic demand should again help to keep Austria's growth rate above that of Germany. The seasonally adjusted series of manufacturing output have been pointing upwards since the end of 1993. Positive signals, as reported in the index of leading indicators, have become more pronounced during the first few months of 1994. Manufacturing output (excluding energy) exceeded last year's level by 2.9 percent in January and 3.8 percent in February. The upturn in manufacturing is mostly due to the recovery in the production of intermediary products. The expansion has not yet reached the investment and consumer goods industries. The mild weather stimulated construction activity; this effect is particularly clear in March. After the deep recession in 1993, a recovery is under way in the export sector. The value of exports surpassed last year's level by 3.1 percent in January, by 9.3 percent in February. The rebound in the demand for Austrian products is particularly lively in overseas and Eastern Europe. As the upswing gathers strength in Western Europe demand from countries of the EU and EFTA is also likely to pick up. Price and wage increases were modest at the beginning of the year (index of negotiated wages +3.6 percent, consumer price index +3.1 percent). Price increases showed great variation: while food prices remained unchanged increases in rents and public charges were above average. The incipient recovery and seasonal factors have improved the situation in the labor market. In the first quarter of 1994 the employment gain, compared to the first quarter of 1993, was 6,000 persons. Employment in the construction industry and in tourism benefited from favorable weather conditions and an early Easter.