Industrial production and retail sales have come down from their high level at the beginning of the year. Employment and consumer prices have also developed less favorably in recent months. The international framework conditions predominantly suggest the upswing will continue in Western Europe though judgments on the outlook have turned more cautious. Even before financial and foreign exchange markets were hit by renewed turbulence last March, the international business cycle upturn lost momentum. Demand and output growth in the U.S. slowed from a (seasonally adjusted annualized) rate of over 5 percent in the last quarter 1994 to 2¾ percent in the first three months 1995, mainly as a result of endogenous cyclical factors and the upward drift in interest rates over the last year. Financial markets reacted positively to the cooling of activity as it dissipated concerns over a rekindling of inflation. In Western Europe also, recovery may have shifted into lower gear which should, however, add to its sustainability. It was only with the abrupt fall of the dollar and the accompanying shake-ups within the European Monetary System (EMS) that the prevailing optimism concerning the business outlook faded. Particularly the hard-currency countries saw their external competitiveness and thus exports as the driving force of the upswing, once again endangered. From then on, the rather weak signals from the U.S. and Japan were interpreted with less confidence. In Austria, industrial orders and output both weakened somewhat between January and March, while still posting year-to-year gains. Suppliers of semi-manufactures, especially of inputs to the basic metals, the electronics and the construction industry, as well as producers of investment goods fared better than the sector average, benefiting from lively domestic and foreign demand. No detailed and reliable information on merchandise exports (nor imports) is available since the beginning of the year, due to changes in the statistical recording system following accession to the EU. However, the rise of 14 percent in receipts from shipment of goods abroad suggests continued buoyancy of exports. Revenues from foreign tourism, however, continued their decline. In spite of exceptionally good snow conditions last winter, the number of overnight stays by foreign visitors was 4 percent lower from January to April than a year ago. The strong rise, at the same time, of expenditure by Austrians abroad partly reflects the effects of "shopping tourism" to exploit price advantages related to the exchange rate shifts. The rise in employment has slowed from about 26,000 persons (year-on-year) last fall to 8,000 on average in April and May. Demand for labor is now virtually saturated even in the service branches like retail trade or hotels and restaurants. Bans on hiring are taking effect in parts of the public sector. Unemployment has risen slightly to a seasonally adjusted rate of 4.6 percent in May. The gradual deceleration of inflation suffered a setback in April when the consumer price index rose at an annual 2.6 percent rate (compared with 2.4 percent in February and March). There are indications that exchange rate-induced price advantages are being diverted into higher mark-ups by suppliers and traders, just as the pass-through of price cuts related to EU membership is generally slow. The latest rise in the mineral oil tax will push headline inflation up by 0.4 percentage points as from May 1995.
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