Ewald Walterskirchen

Higher Oil Prices and Budgetary Consolidation Dampen Economic Growth

Economic Outlook for 2000 and 2001

The rise in crude oil prices and more determined efforts to consolidate public finances will make for slower economic growth next year. Following a strong cyclical upswing in 2000 (+3.5 percent), activity is set to expand by a more moderate 2.8 percent in 2001.

All staff members of the Austrian Institute of Economic Research contribute to the Economic Outlook. • Cut-off date: 4 October 2000

CONTENTS

Stronger efforts to consolidate public finances

More restrictive monetary stance

Oil prices to weaken the cyclical upswing in the industrialised countries

Export growth to decelerate in 2001

Budgetary consolidation squeezes disposable income and consumption growth

Decelerating inflation

Continued decline in unemployment

LIST OF TABLES AND FIGURES

Table 1: Main results. 2

Table 2: Key policy indicators. 7

Table 3: World economy. 8

Table 4: Productivity. 9

Table 5: Private consumption and earnings. 11

Table 6: Earnings and international competitiveness. 11

Table 7: Labour market 12

Figure 1: Indicators of economic performance. 4

[1] The Austrian business cycle has attained a peak in the current year. Real GDP is expected to grow by 3½ percent, the highest rate since 1990. Buoyancy is extending to all components of demand: exports, investment and consumption.

[2] In 2001, losses in disposable income stemming from higher oil prices and greater efforts at fiscal consolidation will slow the pace of growth to a projected 2.8 percent. According to the regular WIFO survey, the improvement in the business climate has levelled off in recent months.

[3] The price of crude oil has moved up to over 30 USD per barrel in autumn, three times its low in late 1998. The raise in supply quotas decided by OPEC has so far had little dampening effect. If oil prices were to remain at that level for a longer period of time, a noticeable impact on economic developments should be expected. On cautious assumptions, GDP growth in 2001 may be reduced by ¼ percentage point. An early rise in exports to oil producing countries would mitigate the drag on purchasing power, but little such evidence was to be found until late summer.

[4] The high oil prices evoke memories of the two price shocks of 1973-74 and 1979-80. Since that time, however, OECD countries have significantly reduced their dependency on oil imports. Moreover, in today's more competitive environment it would be more difficult to pass higher energy costs onto wages and consumer prices. Still, there can be no doubt that risks for global economic development have increased of late.

[5] Further demand-restraining effects will derive next year from a tighter stance of fiscal consolidation. The government's new "austerity package" will boost wage tax revenues by some ATS 10 billion, trim social benefits and raise advance payments on income and corporate tax by an amount of ATS 15 billion. In view of the abolition of the investment premium as from 1 January 2001, firms will be encouraged to carry forward planned investments into the current year. To a similar extent, capital spending will be reduced in 2001.

[6] The proposed expenditure cuts in the areas of old-age insurance and civil service personnel will dampen the rise of disposable income. On preliminary estimates, the "austerity package" may take ¼ percentage point off GDP growth, both in 2001 and 2002. The general government deficit is projected to shrink to 0.8 percent of GDP. A financing gap of around 1½ percent of GDP for the Federal government will be partly offset by an overall 0.7 percent surplus for the Federal states, to be achieved by expenditure restraint and by transferring tasks "off budget". The government revenue/GDP ratio will rise to almost 46 percent in 2001.

[7] In the USA, monetary policy will have a restrictive impact on demand. The Federal Reserve has tightened its stance in the face of mounting inflationary danger. The yield structure in the USA has been inverted for the last couple of months, i.e., short-term rates are exceeding long-term ones. In the past, such a constellation has, with a time lag, led to weaker activity. The European Central Bank (ECB), too, has raised interest rates substantially in the course of the year. However, short-term rates in the euro area are still below long-term rates, which should limit, for the time being, any dampening cyclical impact.


Table 1: Main results

	1997	1998	1999	2000	2001
	Percentage changes from previous year

GDP
Volume	+1.2	+2.9	+2.1	+3.5	+2.8
Value	+2.8	+3.5	+3.0	+4.8	+4.2

Manufacturing¹, volume	+3.8	+3.4	+2.3	+6.5	+4.8

Private consumption expenditure, volume	+0.1	+1.5	+2.7	+2.8	+2.0

Gross fixed investment, volume	+0.8	+6.8	+2.9	+4.4	+3.5
Machinery and equipment²	+4.6	+10.6	+5.5	+7.5	+6.5
Construction	-1.6	+4.1	+1.0	+2.0	+1.0
Exports of goods³
Volume	+16.5	+8.1	+6.9	+12.0	+7.5
Value	+16.8	+8.4	+7.0	+15.4	+10.2
Imports of goods³
Volume	+9.4	+7.1	+5.4	+8.0	+6.0
Value	+10.9	+6.6	+6.7	+13.4	+8.1

Current balance billion ATS	-79.2	-64.5	-75.1	-84.8	-70.4
billion EUR			-5.5	-6.2	-5.1
as a percentage of GDP	-3.1	-2.5	-2.8	-3.0	-2.4

Long-term interest rate⁴ in percent	5.7	4.7	4.7	5.6	5.6

Consumer prices	+1.3	+0.9	+0.6	+2.3	+1.5

Unemployment rate percent of total labour force⁵	4.4	4.5	3.8	3.5	3.4
percent of dependent labour force⁶	7.1	7.2	6.7	5.9	5.3
Dependent employment⁷	+0.4	+1.0	+1.2	+1.0	+0.8
General government financial balance as a percentage of GDP	-1.7	-2.3	-2.1	-1.6	-0.8
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. - ⁶ According to Labour Market Service. - ⁷ Excluding parental leave and military service.

[8] The rise in energy import values will put a heavy burden on this year's current account. The deficit is set to aggravate by some ATS 10 billion to a ratio of 3 percent of GDP. However, such a gap no longer causes any immediate concern for exchange rate policy, since Austria has become part of the euro area. More generally, the risk is also being rated lower since the booming and highly competitive U.S. economy has been accumulating large deficits. Moreover, the Austrian external deficit should narrow again in 2001, once oil prices start falling.

[9] Assuming a fall in the oil price to around 27 USD per barrel and a rise in the euro exchange rate, the rate of inflation should abate to 1.5 percent in 2001 - mainly because the contribution from the energy component (adding 0.8 percentage point in 2000) will disappear. It is further assumed that, due to nowadays more competitive conditions, higher oil prices will feed through to consumer prices to a lower degree than in the past.

[10] The projected slowdown in economic growth will also be reflected in the pace of job creation. Total employment is expected to rise by some 25,000 people next year (2000 +30,000). The rate of unemployment (as defined by the Labour Market Service) may nevertheless keep declining (from 5.9 to 5.3 percent), since a smaller part than so far of the new jobs may be filled by new entrants to the labour market. The demographic component of labour supply is shrinking. Also, the expansion of labour market measures in recent years (e.g., "job coaching") has allowed to better assess the ability and willingness to work of people unemployed. Claims for unemployment benefits are now more often denied or suspended than before. For all these reasons, the unemployment rate following Eurostat definitions - on the basis of the labour market survey - will decline notably less than the one according to the labour market service.

Figure 1: Indicators of economic performance

Vis-à-vis the euro area.- ² Manufacturing; in a common currency vis-à-vis trading parnters.-³ 10-year central government bonds (benchmark).- ⁴ Excluding parental leave and military service.

Figure 1/Continued: Indicators of economic performance

Vis-à-vis the euro area.- ² Manufacturing; in a common currency vis-à-vis trading parnters.-³ 10-year central government bonds (benchmark).- ⁴ Excluding parental leave and military service.

Stronger efforts to consolidate public finances

[11] In 2000, the overall fiscal stance has been expansionary, as tax cuts and higher family benefits were "financed" by a number of one-off measures with little impact on aggregate demand. The general government deficit is expected at 1.6 percent of GDP, down from 2.1 percent in 1999. It should also fall below earlier projections, due to higher receipts from wage tax.

At 1.6 percent of GDP, general government net borrowing this year will remain somewhat below earlier projections. In 2001, the consolidation measures taken should cut the deficit ratio in half vis-à-vis 2000.

[12] Next year, one-off measures will be replaced by ones with more lasting effect on private incomes, making for a demand-restraining budgetary impact in 2001. The latest "austerity package" will boost wage tax revenues by an estimated ATS 10 billion; social expenditure (unemployment benefits) will be cut; and firms and self-employed have to make higher down-payments on corporate and income tax (yielding additional ATS 15 billion in tax revenues). Some spending restraints for old-age insurance have already been decided, others for the public sector wage bill are envisaged.

[13] As a result of the "austerity package", the general government deficit will be reduced to 0.8 percent of GDP in 2001. While a financing gap of around 1½ percent of GDP is projected for the Federal government budget, the Federal States should accumulate an overall surplus of 0.7 percent, to be achieved by expenditure restraint and by transferring tasks "off budget". The government revenue/GDP ratio will rise to almost 46 percent (2000 44½ percent).

[14] According to rough and preliminary estimates, the "austerity package" may dampen the rate of GDP growth in 2001 and 2002 by ¼ percentage point each. WIFO will proceed at more thorough model calculations, once all measures have been fixed in detail.


Table 2: Key policy indicators
	1997	1998	1999	2000	2001

Fiscal policy
Central government net balance billion ATS	-67.7	-77.0	-64.7	-60.0	-45.0
as a percentage of GDP	-2.7	-2.9	-2.4	-2.1	-1.5
General government financial balance as a percentage of GDP	-1.7	-2.3	-2.1	-1.6	-0.8
General government primary balance as a percentage of GDP	2.1	1.5	1.5	1.9	2.6

	In percent

Monetary policy
3-month interest rate	3.5	3.6	3.0	4.3	4.8
Long-term interest rate¹	5.7	4.7	4.7	5.6	5.6

	Percentage changes from previous year

Effective exchange rate
Nominal	-1.7	+2.8	+1.5	-1.8	+1.7
Real	-4.6	+0.3	-1.1	-2.5	+0.7
¹ 10-year central government bonds (benchmark).

More restrictive monetary stance

[15] In view of high capacity utilisation and mounting risks for price stability, the U.S. Federal Reserve has tightened the monetary reins up to last May. Within twelve months, the Federal Funds rate was raised by altogether around 1½ percentage points to the mark of 6.5 percent. The interest rate structure in the USA has for some months now been inverted, i.e., the policy-controlled short-term rates are higher than long-term rates. In the past, such a situation, when maintained for some time, has regularly, albeit with a certain lag, led to a business cycle slackening. Thus, the latest experience of monetary restriction should significantly dampen U.S. growth next year.

[16] In a similar way, the European Central Bank has switched from expansion to a more neutral course of monetary policy, in order to prevent the build-up of inflationary pressure. Key interest rates were raised by 2 percentage points over one year, with inflation risks and excessive growth in money supply being cited as reasons. The rise in oil prices, implying an income transfer towards oil producing countries, is not to be passed onto wages or interest rates.

[17] Unlike in the USA, short-term interest rates in the euro area are still below long-term ones. Activity should be dampened to only small extent in the short run. Supply with liquidity is still accommodating in the EU.

[18] Assumptions made for 2001 are for a gradual fall in oil prices and a rebound in the euro exchange rate. Inflation risks should then recede, requiring no further monetary tightening. Short-term interest rates should remain below 5 percent, long-term rates slightly above 5½ percent.

Oil prices to weaken the cyclical upswing in the industrialised countries

[19] In autumn, spot market prices for crude oil rose to a ten-year high. Exceeding the mark of USD 30 per barrel, they have tripled from their low as of end-1998. Neither the raise of supply quotas by OPEC nor the announcement by the U.S. government to sell part of the country's strategic oil reserves has so far had a significant dampening effect on prices. The reasons for the price hikes should be seen in higher energy demand driven by strong economic growth, as well as in speculative behaviour.

[20] If oil prices were to remain at present levels over a longer period of time, a significant impact on business activity should be expected. The new WIFO projections are based on an average oil price of USD 29 per barrel for 2000, USD 12 above the year-earlier level. For 2001, it is assumed that the reference price will moderate to USD 27, as the speculation-induced part of the rise should prove transitory and a further increase in supply quotas should be expected.

[21] Using international simulation models, WIFO has calculated the effects on the world economy of a sustained oil price rise by USD 10 per barrel. Results broadly converged towards an implicit loss of GDP growth by ¼ percentage point on an annual basis for Europe. Considerably larger will be the impact on domestic prices.

[22] The oil price rise will divert around 1 percent of European output towards the oil producing countries. This real income loss will be better accommodated, the sooner European exports to these countries pick up. As the experience from the 1970s shows, an inventory boom for energy-intensive goods may in the first instance mask the restrictive impact of the oil price hike.

[23] The oil price shocks of 1973-74 and 1979-80 were accompanied by global cyclical highs. The oil-price-induced speculative inventory build-up gave a temporary boost to overall demand. It was only when stockbuilding collapsed that industrialised countries fell into recession. Since that time, however, oil dependency of OECD countries has been considerably reduced. Moreover, today's widely enhanced competitive pressures should make it more difficult to pass higher energy costs onto wages and consumer prices. Even so, the recent oil price hike has undoubtedly led to higher risks for the world economy.


Table 3: World economy
	1997	1998	1999	2000	2001
	Percentage changes from previous year

Real GDP
Total OECD	+3.1	+2.0	+2.7	+4.0	+2.8
USA	+4.4	+4.4	+4.2	+5.0	+2.8
Japan	+1.6	-2.5	+0.2	+1.0	+1.5
EU	+2.5	+2.7	+2.4	+3.3	+2.8
Euro area	+2.3	+2.7	+2.3	+3.5	+3.0
Germany	+1.4	+2.1	+1.6	+3.0	+2.8
Central Eastern Europe¹	+4.7	+3.4	+3.3	+4.2	+4.5

World trade, volume	+10.0	+5.4	+5.7	+10.5	+7.5
OECD exports	+10.9	+5.7	+4.7	+10.5	+7.5
Intra-OECD trade	+11.3	+8.3	+6.6	+10.3	+7.5

Market growth²	+9.4	+11.5	+3.8	+10.0	+7.5

Primary commodity prices, in USD
HWWA index, total, 1990 = 100	-2.0	-23.0	+13.0	+41.0	-4.0
Excluding energy	+1.0	-13.0	-8.0	+3.0	+3.0

Crude oil prices
Average import price (cif) for OECD countries USD per barrel	19.1	12.6	17.3	29.0	27.0

Exchange rate USD per ECU or EUR	1.134	1.121	1.07	0.94	0.99
¹ Poland, Slovakia, Slovenia, Czech Republic, Hungary. - ² Real import growth of trading partners weighted by Austrian export shares.

[24] The first half of 2000 has seen a strong expansion of global economic activity. In the USA, growth was once again ahead of expectations, and in Western Europe, the upswing continued at a swift pace. Major incentives were also provided by the recoveries in emerging markets and developing countries.

[25] In the USA, monetary restriction and the drag on disposable income from higher oil prices are set to weaken demand and output growth. First signs have already become apparent during the summer months. GDP growth in 2001 is projected to slow to 2¾ percent (after 5 percent in 2000). While such deceleration has been forecast time and again in recent years, present projections draw additional support from the inverted interest rate structure and the oil price increase.

[26] Exports are booming in Europe, driven by the low euro exchange rate. The weak euro and the favourable economic outlook have at the same time raised the euro area's attractiveness for foreign investors. Pent-up demand for information and communication technology is providing additional stimulus for investment. GDP in the euro area is projected to expand by 3½ percent this year, before decelerating markedly in 2001, under the combined impact of higher oil prices and the rise in policy-controlled interest rates.

[27] In Germany, too, economic activity is strongly upward bound, propelled by lively external demand. Foreign direct investment from the USA has gained substantially. On the other hand, demand from private households and construction activity have remained slack. GDP growth is projected to edge down from 3 percent to 2¾ percent in 2001.

Export growth to decelerate in 2001

[28] The rise in oil prices has cast a shadow over the strong upswing of economic activity in Austria. According to the regular WIFO survey, business sentiment has reached a peak last summer and has levelled off since.

[29] Growth of real GDP in 2000 is expected at 3½ percent or slightly higher (1^st semester: +3.9 percent) - the strongest advance since 1990. Next year, the oil-price-related drag on disposable income and the greater momentum of fiscal consolidation may slow the pace of activity to a rate of 2¾ percent.

[30] Growth is being mainly driven by exports this year, which, as far as goods are concerned, are set to rise by 12 percent in volume. The increase in demand from third countries is even exceeding that from EU partners, since the fall in the euro exchange rate has improved Austria's international competitive position. Exports to OPEC countries have so far hardly reacted to these countries' income gains.

[31] The deterioration in the terms of trade has a marked dampening effect on the GDP deflator for 2000. Merchandise import prices are rising by at least 2 percentage points faster than export prices. Thus, in the current year, nominal GDP growth is no reliable yardstick for estimating the increase in overall government revenues.


Table 4: Productivity
	1997	1998	1999	2000	2001
	Percentage changes from previous year

Total economy
Real GDP	+1.2	+2.9	+2.1	+3.5	+2.8
Employment¹	+0.5	+0.9	+1.4	+1.0	+0.8
Productivity (GDP per employment)	+0.7	+1.9	+0.7	+2.5	+1.9
Full-time equivalent	+1.3	+2.4	+1.1	+2.9	+2.3

Manufacturing
Production²	+3.8	+3.4	+2.3	+6.5	+4.8
Employees³	-1.4	+0.1	-0.7	±0.0	±0.0
Productivity per hour	+5.4	+3.2	+3.6	+4.6	+4.8
Working hours per day for employee⁴	-0.1	+0.1	-0.6	+1.8	±0.0
¹ Dependent and self-employed according to National Accounts. - ² Value added. - ³ According to Assciation of Austrian Social Security Bodies. - ⁴ According to "Konjunkturerhebung" of Statistics Austria.

[32] Lively external demand and high capacity utilisation have prompted firms to increase investment by a considerable margin. In addition, some purchases of machinery and vehicles will be carried forward into 2000, in view of the imminent abolition of the investment premium. Investment in machinery and equipment is expected to gain 7½ percent in volume, before decelerating somewhat next year.

[33] Benefiting from booming exports, but also from firm domestic demand, manufacturing output should rise by 6½ percent in 2000, and by nearly 5 percent in 2001. Producers of investment goods post the strongest gains in exports and output, ahead of suppliers of primary goods.

[34] Carry-forward effects motivated by the abolition of the investment premium are to be expected also in the construction sector. Invoices for construction work will as much as possible be issued still this year. Output is projected to expand by 2 percent and 1 percent, this year and next. Sluggish demand for new homes is bearing down on residential construction, while demand for commercial buildings is picking up.

[35] The tourism industry may expect an inflation-adjusted rise in foreign earnings by 2½ percent for 2000, although total overnight stays are broadly flat. Unlike in recent years, the net foreign balance on tourism services will weaken, as spending on foreign travel by Austrian residents is rising strongly.

[36] The current account deficit is widening considerably in 2000: by around ATS 10 billion to a total ATS 85 billion. This is mainly due to the increase in the cost for imported energy by ATS 20 to 25 billion. Yet, a large external deficit is no longer regarded as an immediate concern for exchange rate policy, since Austria has become part of the euro area. More generally, the risk is also being rated lower since the booming and highly competitive U.S. economy has been accumulating large deficits. Moreover, the Austrian external deficit should narrow again in 2001, once oil prices start falling.

Budgetary consolidation squeezes disposable income and consumption growth

[37] Private consumption is set to expand by an inflation-adjusted 2.8 percent this year, supported by the boost in disposable income from tax cuts and higher family benefits. Demand is strong notably for consumer electronics, while motor car sales have levelled off. Wholesale trade is rising even faster than retail sales, due to the boom in exports.

[38] Next year, the measures of budgetary consolidation will squeeze disposable income and consumption growth. Measures taken to control the rise in spending on old-age insurance and on public sector salaries have already been incorporated into WIFO's projections of last June. Now, discretionary action will boost wage tax revenues by around ATS 10 billion in 2001, thereby taking away half the effect of this year's tax cuts.

After strong gains in consumer expenditure in 2000, which were fuelled by tax cuts and higher family benefits, the stronger drive towards fiscal consolidation will constrain private consumption growth in 2001.

[39] In addition, housewives without children will from now on pay their own health insurance contributions, and unemployment benefits will be cut (abolition of the family supplement; no benefits for the first month following the termination of a work contract by mutual agreement between employer and employee). If advance payments on income and corporate tax are raised as envisaged, revenues from both taxes will increase by some ATS 15 billion already in 2001.

[40] Real net disposable income from employment and social transfers is now projected to increase by 0.8 percent in 2001, a downward revision by roughly 1 percentage point from last June. Notwithstanding an expected marked fall in the saving ratio, the projection for private consumption is being adjusted from 2.6 to 2 percent.

Decelerating inflation

[41] Higher energy prices have given considerable momentum to inflation in 2000. On annual average, the consumer price index is likely to rise by 2.3 percent. The increase in energy prices (by almost 10 percent) and the raise of motor car taxes contribute 0.8 and 0.2 percentage points, respectively, to the annual rate. The rise in the Harmonised Consumer Price Index for Austria broadly corresponds to the EU average.

[42] In 2001, the rate of inflation should abate to 1.5 percent, as the energy component ceases to exert upward pressure. This presupposes that the underlying assumptions of a fall in crude oil prices and a rising euro exchange rate are confirmed.

The rate of inflation will abate in 2001, as energy prices should no longer exert upward pressure. "Core" inflation, however, remains on an upward trend.

[43] A further important condition for a significant deceleration of inflation is that an increasingly competitive environment will allow only to a limited extent a pass-through of high energy costs to manufactures prices and to wages. WIFO projections are for a 3 percent rise in wages and salaries per full-time employee in 2001 (2000: +2.4 percent), whereby settlements for the public sector exert a dampening impact on the overall rate. To a large extent, the wage increase would be accommodated by an advance in productivity, allowing unit labour costs for the economy as a whole to remain broadly stable (+½ percent). Furthermore, lower telephone and electricity charges for private households should hold the inflation rate down.


Table 5: Private consumption and earnings
	1997	1998	1999	2000	2001
	Percentage changes from previous year, volume

Private consumption expenditure	+0.1	+1.5	+2.7	+2.8	+2.0
Durables	-3.5	+1.9	+5.7	+1.8	+1.0
Non-durables and services	+0.7	+1.5	+2.2	+2.9	+2.1

Net wages and salaries	-2.0	+2.5	+3.1	+2.0	+0.8

Inflation rate	In percent

All items	1.3	0.9	0.6	2.0	1.5
Core inflation¹	1.1	1.2	0.8	1.8	2.2
¹ Excluding food and energy items.

[44] As from 2001, the consumer price index will be converted to a new base year. In the past, such conversions have generally had a dampening effect on the measured inflation rate. Should this rule be confirmed by the new index, the 2001 rate of inflation should go down also for statistical reasons.

[45] The projected slowdown in inflation should, however, not distract from the fact that "core" inflation (i.e., excluding food and energy items) will remain on an upward trend: from 1.8 to 2.2 percent in 2001.


Table 6: Earnings and international competitiveness
	1997	1998	1999	2000	2001
	Percentage changes from previous year

Gross earnings per employee¹	+0.7	+2.8	+2.1	+2.0	+2.6
Full-time equivalent	+1.3	+3.2	+2.6	+2.4	+3.0
Gross real earnings per employee	-1.1	+2.1	+1.4	-0.3	+1.1
Net real earnings per employee	-3.5	+2.5	+1.2	+0.6	+0.3

Net wages and salaries	-0.3	+3.2	+3.8	+4.3	+2.3

Unit labour costs
Total economy	+0.3	+1.3	+1.8	-0.2	+0.9
Manufacturing	-4.0	-0.7	-0.5	-2.5	-1.7

Relative unit labour costs²
Vis-à-vis trading partners	-3.5	+0.4	-1.4	-3.3	+0.2
Vis-à-vis Germany	+1.3	+1.5	-0.1	-0.5	-0.2

Effective exchange rate - manufactures
Nominal	-1.8	+2.5	+0.6	-2.0	+1.3
Real	-4.3	+0.5	-1.3	-2.5	+0.4
¹ According to National Accounts. - ² Manufacturing, in a common currency; minus sign indicates improvment of competitiveness.


Table 7: Labour market
	1997	1998	1999	2000	2001
	Changes from previous year, in 1,000

Demand for labour
Civilian employment	+8.8	+22.1	+32.2	+30.4	+24.5
Dependent employment¹	+8.3	+21.1	+31.2	+28.5	+22.5
Excluding parental leave and military service	+12.8	+29.8	+37.2	+31.5	+24.0
Percentage changes from previous year	+0.4	+1.0	+1.2	+1.0	+0.8
Parental leave and military service¹	-4.4	-8.7	-6.0	-3.0	-1.5
Foreign workers	-1.6	-0.2	+7.8	+15.0	+17.0
Self-employed²	+0.5	+1.0	+1.0	+1.9	+2.0

Labour supply
Economically active population	+13.5	+11.0	+19.8	+16.4	+13.8
Total labour force	+11.7	+26.5	+16.2	+4.7	+6.5
Foreign	-1.7	+0.7	+6.6	+13.0	+14.0
Migration of nationals	+5.4	+3.9	+3.0	-1.5	-1.0
Indigenous	+8.0	+21.9	+6.6	-6.8	-6.5

Surplus of labour
Registered unemployed³	+2.8	+4.4	-16.1	-25.7	-18.0
in 1,000	233.3	237.8	221.7	196.0	178.0
Unemployment rate
According to Eurostat (percent of total labour force)	4.4	4.5	3.8	3.5	3.4
According to AMS (percent of total labour force)	6.4	6.5	6.0	5.3	4.8
According to AMS (percent of dependent labour force)	7.1	7.2	6.7	5.9	5.3

Participation rate⁴	67.2	67.6	67.6	67.5	67.5
Employment rate⁵	62.9	63.2	63.6	64.0	64.2
¹ According to Association of Austrian Social Security Bodies. - ² According to WIFO. - ³ According to Labour Market Service. - ⁴ Total labour force as a percentage of active population (aged 15 to 64). - ⁵ Employment as a percentage of active population (aged 15 to 64).

Continued decline in unemployment

[46] Total employment is set to increase by 31,500 or 1 percent year-on-year in 2000. Until spring, gains have been stronger than the year before, but have since been diminishing. In relation to GDP growth, job creation has been surprisingly sluggish, implying strong advances in labour productivity. Abstracting from statistical adjustments (e.g., for Vienna), this has been caused by a "wave" of early retirement, particularly in the public sector, before new regulations were introduced in this regard. Replacement of early retirees has been complicated by relatively tight labour supply and budgetary constraints in the government sector.

[47] For 2001, the net increase in the number of jobs is projected at 24,000, reflecting the slowdown in GDP growth. Given the new regulation on housewives without children being made liable to health insurance contributions, it is assumed that part of the population concerned will seek part-time jobs paid slightly above the contribution threshold. This factor will add to employment growth.

The strong cyclical upswing has significantly improved the labour market situation this year. Unemployment has fallen markedly, but employment gains have been moderate. The unemployment rate is to decline further in 2001, owing to robust activity, relatively tight labour supply, and a number of institutional factors.

[48] Unemployment is falling by an estimated 26,000 this year, more rapidly than was to be expected from the increase in employment. The new jobs are to a rising extent being filled by registered jobseekers, as the working age population is shrinking and the "hidden reserve" has in part been depleted. A further reason for the marked drop in the unemployment rate lies in the expansion of labour market policy measures in recent years, which, as a side effect, has allowed to better assess the ability and willingness to work of people unemployed. Claims for unemployment benefits are now more often denied or suspended than before.

[49] The same tendencies will prevail in 2001. The rate of unemployment (as calculated by the labour market services) is projected to fall from 5.9 to 5.3 percent. The jobless rate for 2000 according to Eurostat is as low as 3.5 percent; it is likely to decline only marginally next year. However, the Eurostat calculations are subject to major revision: thus, the rate for 1999 has been corrected from 4.6 to 3.8 percent. Significant adjustments in the other sense may not be excluded, once results from the labour market survey of last March (Mikrozensus) serve as the new reference base.