Major Risks for the World Economy, Slump in Domestic Construction Demand. Economic Outlook for 2001 and 2002
The projections have been elaborated under a high degree of uncertainty. The terrorist attacks in the USA have hit the world economy in what has been an already fragile business cycle situation. The economic consequences will depend on further international developments and the response from economic policy in the industrialised countries. Under the cautiously optimistic assumptions underlying the forecast, the U.S. economy should recover as from spring 2002, driven by monetary and fiscal expansion. A pick-up also in Europe could follow with a short time lag, if automatic budgetary stabilisers are allowed to operate to full extent. In such a scenario, real GDP in Austria may grow by 1.3 percent in 2001 and 1.9 percent in 2002. The sharp slowdown is caused not only by weaker exports, but also by a slump in construction activity. The slow pace of growth cannot prevent unemployment from rising above the mark of 200,000. Inflation, however, is set to decelerate further. Due to the effect of the automatic stabilisers, the government balance in 2002 may be in deficit of some ATS 10 billion.
Under benign assumptions concerning the international business cycle, the Austrian economy should grow by 1.3 percent in volume this year, and by 1.9 percent in 2002, provided that the U.S. economy recovers and policy in the EU takes action to stem the forces of recession. Along with weaker foreign demand, domestic factors are also dampening growth. In particular the construction sector is in a crisis, affecting building of new structures and civil engineering alike. Unemployment is set to rise significantly, exceeding 6 percent of the dependent labour force, while inflation should decelerate. Due to the effect of automatic budgetary stabilisers, the general government balance in 2002 may be in deficit of around ATS 10 billion (€ 0.74 billion), equivalent to 0.3 percent of GDP. The public sector should thereby contribute towards sustaining economic activity.
Short-term Forecast, Austria; Major Risks for the World Economy, Slump in Domestic Construction Demand. Economic Outlook for 2001 and 2002
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