In spring, after a pause of several months, industrial output resumed its strong upward trend. Yet, a decline in new orders, both domestic and from abroad, suggest renewed slowdown further ahead. Indeed, firms, while remaining optimistic on the whole, have recently turned more cautious in their business outlook. The latest round of interest rate cuts and a further strengthening of the dollar may provide timely support to a flagging European recovery. Merchandise exports and business fixed investment have remained the driving forces of business activity until mid-year. Exports may have risen at a double-digit rate year-on-year over the first six months (judging from the poor-quality information available), boosted by integration effects and the upswing in Eastern Europe. Austria has also benefited from foreign demand currently concentrating on semi-manufactures and machinery. Competitive disadvantages stemming from last March's exchange rate shifts have so far hardly come to the surface but should still be expected to do so, even if, more recently, these shifts have partly been reversed by foreign exchange markets. The decline in industrial export orders in May and June may be a first sign of potential losses of foreign market shares. The most dynamic component of domestic demand is business fixed investment. This year, manufacturing industry has joined other sectors in efforts at rationalization and modernization of capital stock. Probably the strongest investment motives are to seize new market opportunities – in the EU, Eastern Europe or the Far East – and to strengthen international competitiveness. Generally good profits and falling interest rates are conducive to such efforts. The business situation is less favorable in trade, the construction and the tourism industry. While in spring only minor losses in receipts from foreign travel were recorded, the seasonal peak of guest arrivals was delayed by a rather late start in German school holidays. According to preliminary evidence, hotels were reasonably well booked only from mid-July to mid-August. Poor results in tourism are also bearing down on retail trade thereby exacerbating losses caused by increased shopping by Austrians abroad. Still, sales picked up in spring, mainly due to higher demand for durables. In the current account, the trend towards higher deficits continued, albeit at a slower pace. Mainly as a result of lower net receipts from foreign tourism and of Austria starting contributing towards the EU budget, the deficit in the first half of 1995 rose to Sch 20 billion, nearly equalling the total for 1994. In merchandise trade, imports rose at the same brisk pace as exports, thereby giving another sign of lively domestic investment demand. Inflation continues decelerating, with consumer price inflation falling to an annual rate of 2.2 percent in July, the lowest figure in six years. The dampening effects of EU membership on food prices are one reason, the widespread recourse to special offers and end-season discounts by retailers anxious not to lose customers another. However, inflation remains too high for many services and for housing costs. The labor market has fallen into virtual stagnation. While employment had picked up strongly and relatively early after the 1993 recession, the rise has now levelled off. The potential for productivity gains is being fully exploited not only in manufacturing, but also in services including the public sector. Job prospects are generally better for foreign workers because of their lower costs. Thus, foreign employment between March and July rose by 11,500 year-on-year, while domestic employment fell by 8,400. The slight decline in unemployment has come to a halt at a level of 4.6 percent of the labor force.
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