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Austria's Economy Manages to Link Up with the Growth Dynamic in the European Union. Medium-term Forecast for the Austrian Economy until 2001

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  • Fritz Schebeck

    (WIFO)

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    Abstract

    The devaluation of a number of European currencies, measures to consolidate state budgets and structural problems that cannot be resolved all too quickly have together held the growth in the production component of Austria's overall economy since 1994 below that of the average for the EU's member-states. Austria's economy should manage to catch up with the EU's growth dynamic as of 1998 as a result of the elimination of exchange rate-related competitive disadvantages, 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, or, in other words, 1 percentage point more quickly than for the preceding five year period. This forecast rests on the assumption that the third stage of Economic and Monetary Union will be implemented as scheduled on January 1, 1999 and will encompass a large number of participating states. As the expansion of production picks up steam, it will also lead to an increased demand for labor. The growing pool 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 (according to traditional definitions, from 7 percent in 1996 to 6½ percent in 2001). While exports are currently the motor behind economic growth, additional growth impulses during the course of 1998 should also come from investments. The effort to rationalize, to modernize and to expand capacity will lead to the capital expenditures on machinery and equipment growing much more rapidly than those for construction. Because of the subdued growth in the disposable income available to private households, the level of private consumption will only improve gradually and to a limited extent. The continuing efforts at budgetary consolidation will also keep public sector demand in check. During 1997, the public deficit level will fall well below the 3 percent target established in the Maastricht Treaty and will sink below 2 percent GDP at the end of the forecast period. The forecast decline in the current account balance from 2 percent (1997) to approximately 1 percent GDP is largely attributable to an improved balance of trade, which is itself likely as a result of the beneficial conditions which exist for increased competitiveness and the growth in the market share held by exports. The dramatic decline in the travel industry's net receipts should come to a standstill; however, only a very slight recovery is expected for the coming years. As a consequence of the country's accession to the EU, the rate of inflation in Austria has declined markedly. The impact of the restrained growth in the unit labor costs can be witnessed in the forecasts for the rate of inflation. Imports are also expected not to contribute all too much impetus to raising price levels. The European Central Bank is likely to take over from the German Bundesbank the fight against inflation in Europe. The annual rate of inflation during the forecast period will barely reach 2 percent, it will average 1.8 percent (compared to 2.7 percent for the period 1992-1996).

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    Bibliographic Info

    Article provided by WIFO in its journal WIFO-Monatsberichte.

    Volume (Year): 70 (1997)
    Issue (Month): 10 (October)
    Pages: 605-611

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    Handle: RePEc:wfo:monber:y:1997:i:10:p:605-611

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    Keywords: Österreichs Wachstum findet wieder Anschluß an EU. Mittelfristprognose der österreichischen Wirtschaft bis 2001; Austria's Economy Manages to Link Up with the Growth Dynamic in the European Union. Medium-term Forecast for the Austrian Economy until 20;

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