23 November 1997 • Austria's Economic Growth Set to Link Up with the Pace in the European Union. Medium-term Forecast for the Austrian Economy until 2001 • Fritz Schebeck

The devaluation of a number of European currencies, measures to consolidate government budgets and structural problems that could not be resolved in the short term have together held output growth in Austria below that of the average for the EU's member states since 1994. As of 1998, Austria's economy should manage to catch up with the EU's growth trend as a result of exchange rate-related competitive disadvantages wearing off, continuing structural improvements, and a somewhat less restrictive budgetary policy. Measured on average for the period 1997-2001, real GDP will increase at a rate of 2.4 percent per year, 1 percentage point more than for the preceding five-year period. This forecast rests on the assumption that Stage Three of Economic and Monetary Union will be implemented as scheduled on January 1, 1999 and will encompass a large number of EU member states.

As production picks up steam, it will also lead to an increased demand for labor. The growing number of part-time employees is recruited mainly from manpower reserves – and not from among the unemployed. For this reason, the unemployment rate will only decline slowly from 4.4 percent in 1997 to 4 percent in 2001 according to Eurostat (according to traditional definitions, from 7 to 61/2 percent).

While exports are currently the driving force behind economic growth, additional stimulus should come from investment in the course of 1998. The effort to rationalize, to modernize and to expand capacity will lead to capital spending on machinery and equipment growing much more rapidly than that on construction.

Because of sluggish growth in household disposable income, private consumption will only pick up gradually and to a limited extent. The continuing efforts at fiscal consolidation will also keep public sector demand in check.

In 1997, the general government deficit will fall well below the 3 percent target established by the Maastricht Treaty and should decline below 2 percent of GDP at the end of the projection period. The forecast decline in the current account deficit from 2 percent (1997) to approximately 1 percent of GDP is largely attributable to an improvement in the trade balance, which is itself a likely result of the favorable outlook for improved competitiveness and the growth in export market shares. The sharp decline in net receipts from travel should come to a standstill; however, only a slight recovery is expected for the coming years.

As a consequence of Austria's accession to the EU, inflation has subsided markedly. The projected low rate of inflation mirrors the assumed near-stability of both unit labor costs and of import prices. The annual rate of inflation during the projection period will barely reach 2 percent (averaging 1.8 percent compared with 2.7 percent for the period 1992-1996).