Favourable Medium-term Growth Prospects but Sustained Budget Problems. Medium-term Projection for the Austrian Economy 2000-2004
The improving economic environment in the European Union also has a positive impact on Austria. In the forecasting period of 1999 to 2004, its real GDP is expected to grow by 2.5 percent p.a. on average, slightly less than the European average. According to the international scenario for Austria, growth will accelerate and reach its peak in 2001. After weakening for the next two years, it should pick up again in 2004. Backed by the good competitive position, exports are expected to develop dynamically and to make increasing contributions to GDP growth. Expenditure for private consumption should continue to rise by about 2 percent p.a. Employment will continue to expand at a substantial pace, the consequence of good growth prospects as well as measures taken under the National Action Plan for Employment. Nevertheless, unemployment rates will decline only moderately. Increased competition and deregulation will keep prices low. The crude oil price is assumed to remain at its current high level. Wage increases will be modest only. Inflation will thus average just 1 percent p.a. The positive growth prospects will not suffice to solve the budget problems faced by the Austrian government. The fiscal reform (an increase in family allowances and income tax cuts) will place an additional burden on government finances in 2000. Projections assume a restrictive expenditure policy pursued by the government, resulting in a deficit of 1.6 percent of GDP in 2004. The objectives defined in the Austrian government's stability programme have thus been clearly missed, which calls for additional policy measures.
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