Business sectors which depend heavily on domestic demand suffer from the contraction in net real incomes. Consumer spending can be stabilized only at the expense of the household saving ratio. Industrial sectors which participate in the slow recovery in Europe are in a better position. Nevertheless, the current account deficit was pushed up visibly in the first quarter of the year. The modest invigoration of the labor market is driven by the economic recovery as much as by the effects of extended shop-opening hours. The economy has continued its revival in the first months of 1997. With no production data at their disposal, analysts are forced to use polls as sources, which point to an upward trend. Companies report substantial improvements in their orders position and are already responding by hiring new labor. The step-up in production is largely fueled by a growth of international markets and the competitive edge gained by the decline in the real effective exchange rate. Polls by the EU Commission indicate that the restrained economic revival in Europe – and thus demand for Austrian products – will be sustained. Growth of production and demand is particularly brisk in the U.K. and Scandinavia, countries that are benefiting from their close commercial ties to the USA, the motor of the current recovery. In Germany, too, the mood in the industrial community is clearly improving, even though the upswing has not yet reached a self-sustaining level. The labor market situation continues to deteriorate. The development in Italy, Austria's second largest trading partner, on the other hand is alarming: a restrictive economic policy and lira revaluation brought its growth to a standstill at the turn of 1996-97. Tourism in Austria is still in a slump. The number of overnight stays in the first quarter dropped below the previous year's value, in spite of the early date of the Easter holidays. Only Italian tourists are increasing in numbers who profit from the shift in the exchange rate. Domestic guest rates are shrinking rapidly. The situation in the retail trade is characterized by weak demand. Sales stagnated in the first three months, and preliminary results for April point to a sharp downturn compared to the previous year's rate, although the latter was inflated by advanced consumer goods purchases. The weak domestic demand is chiefly caused by modest growth in personal incomes: wages and salaries before taxes show hardly any growth in real terms, and hefty increases of deductions and cuts in transfer payments make for a distinct dent in net incomes. Expenditure on consumption thus can be stabilized only at the expense of the household saving ratio. The modest revival has already impacted on the labor market, mostly in some industries and business-related services. Between January and May, employment figures (excluding parental leave and military service) were 14,500 better on average than in 1996 (May: +10,700). The development appears to be strengthened by the momentum imparted by economic policy measures, i.e., extended shop-opening hours. Thus, employment rates in retail trading were substantially better than in the previous year (+4,000). The seasonally adjusted unemployment rate for May was 4.4 percent of the economically active population according to Eurostat, or 7.1 percent of the dependently employed when calculated by traditional methods. The relation of unemployed to jobs available was 10 : 1. Prices have been stabilizing at a low level. The main contributors to the April rate of inflation (1.5 percent) were the transport and energy sectors and housing costs. Inflation is mostly fueled by increases in taxes and charges and special effects (rising prices for crude oil and coffee). Many services and industrial products have market-determined prices which show hardly any upward movement.
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