Economic Growth Dampened by Oil Price Hike,
but Exceeding the Euro Area Average
Economic Outlook for 2005 and 2006
GDP growth will reach only 1.7 percent this
year and is expected to move but to a marginally higher rate in 2006. The high energy
prices are eating into real disposable income of private households and thereby
into consumer demand. Latest survey results show an improvement in industrial confidence
which may lead to a recovery in machinery and equipment investment from its low
level. Higher public spending on infrastructure, research and the upgrading of qualifications
of the labour force has led to a positive growth differential vis-à-vis the euro
area, while at the same time widening the budget deficit somewhat further.
All staff members of the Austrian Institute of Economic
Research contribute to the Economic Outlook. Cut-off date: 30 September 2005. •
E-mail address: Markus.Marterbauer@wifo.ac.at
The Austrian economy
has moved to a path of moderate growth. Real GDP rose by 0.4 percent seasonally
adjusted in the second quarter from the previous period and may keep a similar pace
throughout the second half of the year. Activity is held back mainly by the high
costs of energy whose direct share in total consumer expenditure amounts to 7 percent.
Their contribution to the increase in consumer prices is close to ½ percentage point.
Assuming that the increase in energy prices will be passed on to other goods and
services to such a moderate degree as so far, the rate of inflation will average
2.4 percent this year and 2.1 percent in 2006. Real disposable income of private
households is growing by only around 1½ percent per year, allowing a gain in private
consumption by 1.4 percent in real terms. Such an increase would be higher than
last year, but undershoot the long-term average significantly for the fifth year
in a row, undermining activity in the trade sector and in other services branches.
The export-oriented industrial sectors are growing
faster than those parts of the economy depending mainly on domestic demand. Austrian
exporting companies are proving highly competitive, boosting deliveries by a further
4.2 percent this year from the particularly successful performance in 2004, when
export volumes jumped by 12.9 percent. Demand is growing notably from the oil-exporting
countries whose foreign revenues have risen substantially. Incoming orders from
the euro area are faring less well, given the lack of stimulus from internal demand.
In the regular WIFO business survey, manufacturing firms have expressed continued
uncertainty about the further trend in output, despite the latest improvement in
business confidence. If such early signs for an industrial upturn are confirmed,
the manufacturing sector may expect an increase in net value added by an inflation-adjusted
2.7 percent this year.
An increase in output and an improvement in
medium-term expectations are prerequisites for a revival in machinery and equipment
investment. With a projected decline of 1 percent in volume on annual average 2005,
corporate investment spending has been subdued so far, despite an altogether comfortable
profit situation. Since a large part of investment goods is supplied from abroad,
notably machinery and vehicles, sluggish investment, in conjunction with weak consumer
purchases of motor cars, is holding back merchandise import growth, projected at
1.7 percent in volume for 2005. For this reason, the trade balance is expected to
be in small surplus, notwithstanding the high energy costs.
Since 1 May, 2005, the Federal government has
adopted a set of measures designed to stimulate economic activity and rein back
the marked rise in unemployment. Extra-budgetary funds for the improvement of transport
infrastructure and expenditure for research were increased and budget allocations
for active labour market policy reinforced. Public investment, in particular, should
provide cyclical stimulus, mirrored by substantially higher order levels as reported
by civil engineering companies. Since demand for residential construction is also
strengthening, overall value added of the construction sector should expand by an
inflation-adjusted 1.5 percent in 2005 and 2 percent in 2006.
|
||||||
Main results |
||||||
|
2001 |
2002 |
2003 |
2004 |
2005 |
2006 |
|
Percentage
changes from previous year |
|||||
GDP |
|
|
|
|
|
|
Volume |
+0.8 |
+1.0 |
+1.4 |
+2.4 |
+1.7 |
+1.8 |
Value |
+2.6 |
+2.2 |
+2.8 |
+4.4 |
+3.5 |
+3.7 |
Manufacturing1, volume |
+2.3 |
+0.4 |
–0.1 |
+4.6 |
+2.7 |
+3.0 |
Whole sale and retail trade, volume |
+2.0 |
+2.0 |
+0.3 |
+1.9 |
+1.2 |
+1.5 |
Private consumption expenditure, volume |
+1.0 |
+0.3 |
+1.6 |
+0.8 |
+1.4 |
+1.7 |
Gross fixed investment, volume |
–1.5 |
–5.0 |
+6.1 |
+0.6 |
+0.4 |
+2.4 |
Machinery
and equipment2 |
+1.9 |
–8.2 |
+7.7 |
+0.8 |
–1.0 |
+3.0 |
Construction |
–4.2 |
–2.3 |
+4.8 |
+0.5 |
+1.5 |
+2.0 |
Exports of goods3 |
|
|
|
|
|
|
Volume |
+6.3 |
+4.3 |
+2.6 |
+12.9 |
+4.2 |
+5.2 |
Value |
+6.5 |
+4.2 |
+1.9 |
+13.9 |
+5.6 |
+6.0 |
Imports of goods3 |
|
|
|
|
|
|
Volume |
+5.5 |
+0.3 |
+6.5 |
+11.4 |
+1.7 |
+4.1 |
Value |
+5.0 |
–2.0 |
+5.0 |
+12.5 |
+4.6 |
+5.7 |
Current balance billion
€ |
–4.13 |
+0.75 |
–1.17 |
+0.75 |
+1.24 |
+1.07 |
As a percentage
of GDP % |
–1.9 |
+0.3 |
–0.5 |
+0.3 |
+0.5 |
+0.4 |
Long-term interest rate4 % |
5.1 |
5.0 |
4.2 |
4.2 |
3.4 |
3.6 |
Consumer prices |
+2.7 |
+1.8 |
+1.3 |
+2.1 |
+2.4 |
+2.1 |
Unemployment rate |
|
|
|
|
|
|
Percent of
total labour force5 % |
3.6 |
4.2 |
4.3 |
4.8 |
5.1 |
5.1 |
Percent of
dependent labour force6 % |
6.1 |
6.9 |
7.0 |
7.1 |
7.2 |
7.2 |
Dependent employment7 |
+0.4 |
–0.5 |
+0.2 |
+0.7 |
+0.9 |
+0.9 |
General government financial balance according to Maastricht definition |
|
|
|
|
|
|
As a percentage
of GDP % |
+0.1 |
–0.4 |
–1.2 |
–1.0 |
–1.9 |
–2.0 |
Source: WIFO
Economic Outlook. – 1 Value added, including mining and quarrying. – 2
Including other products. – 3 According to Statistics Austria.
– 4 10-year central government bonds (benchmark). – 5
According to Eurostat Labour Force Survey. – 6 According to Labour Market Service, percent
of total labour force excluding self employed. – 7 Excluding parental leave, military service,
and unemployed persons in training. |
||||||
|
In 2006, funds at the disposal of the labour
market service for the upgrading of workers' qualifications and for facilitating
labour market insertion have been stepped up by one-third. The focus is to be set
on subsidies to women returning to the labour market and to young workers and jobseekers,
i.e., those problem groups whose situation has deteriorated most during the last
few years. WIFO expects that due to these measures a further increase in the unemployment
rate in 2006 can be prevented. By then, the number of people out of work will have
risen to more than 250,000, corresponding to an unemployment rate of 7.2 percent
of the dependent labour force, or 5.1 percent of the total labour force on Eurostat
definitions. The overall pattern on the labour market will remain unchanged, with
employment heading up by around 1 percent in spite of economic growth remaining
moderate, but labour supply increasing much faster than in the past.
The expansionary budgetary measures adopted
since May 2005 should for the larger part become effective next year, with an estimated
growth impulse of 0.3 percent of GDP. Owing to this impulse, the Austrian economy
should grow slightly faster than the euro area average. At the same time, the additional
government spending will lead to a somewhat higher budget deficit. The latter is
projected at 2 percent of GDP for 2006, thereby exceeding the benchmark figure laid
down in the Federal budget and in the Stability Programme.