Cyclical Recovery in Danger of Stalling. Economic Outlook for 2004 and 2005

Growth of real GDP is set to accelerate from 0.7 percent in 2003 to 1.5 percent this year. From the middle to the end of last year, the business climate in the cyclically sensitive manufacturing sector has steadily improved, although since the beginning of 2004 firms have turned more sceptical as to their short-term output expectations. WIFO therefore assumes that the recovery in industry will make only slow progress. While the expansionary forces are gaining ground in the world economy, they are only partly transmitted to the euro area because of the high euro exchange rate and the sluggishness of internal demand. In Austria, business activity will be sustained by domestic demand. Construction is booming in 2004, and in 2005 private consumption growth may rise above its long-term trend, for the first time in four years. Cuts in direct taxes will strengthen disposable incomes markedly. Against the background of a sizeable increase in labour supply, the small gains in the number of economically active will not prevent unemployment from rising further. On annual average 2005, the jobless figure will be close to 250,000.