Subdued Economic Activity in the Euro Area and in Austria despite International Recovery

At the worldwide level, economic recovery appears to be picking up even more momentum. The U.S. has seen sharp increases in growth given the strong impetus from consumer spending and investment. In Asia, Japan seems to have ended its long period of economic recession, and the Chinese and Southeast Asian economies have continued to expand rapidly. The growth outlook has also improved for Eastern Europe. At the same time, however, economic recovery is still moderate in the euro area, and it appears that the risks have increased more than they have decreased. The positive effects of robust international demand are being offset by the subduing effect of the euro's rally, and domestic demand — especially consumer spending — has recently been less dynamic than expected. However, the inflation outlook is still assessed as favorable. Since the beginning of 2004 inflation in the euro area has been below 2% and is expected to remain at this low level. For Austria, economic development in the first half of 2004 is currently forecast with cautious optimism, although the data recently released for the second half of 2003 clearly did not live up to expectations. This is another reason why the situation in the Austrian labor market is still tight and not expected to improve in the first half of this year. Inflation will remain at its current low level. So far, the most striking event in 2004 has been the May 1 enlargement of the European Union to include ten new Member States. For most of the new members, acceding to the EU represents the climax of a political and economic transformation process, which had begun in 1989 and has generally been highly successful. The enlargement, adding another 74 million people to the EU's population, was also a unique event for the EU itself. In economic terms, we can expect the enlargement to have positive effects on medium-term growth throughout the EU. At the same time, new challenges have arisen regarding the monetary integration of these countries and the redefinition of the EU's policy on neighboring countries (proximity policy).