Forces making for a business cycle recovery slowed in Germany towards the end of 1996. In Austria, foreign demand strengthened, both for goods and for tourism services; private consumption held up better than expected. Yet, industrial firms remain very skeptical in their business outlook for the next few months. The strength of the dollar and low interest rates should provide the stimulus required in order to keep European economies on an upward track. In fall 1996, developments in demand from abroad put some brighter spots into the cyclical picture of the Austrian economy. Thus, in October and November merchandise exports – as measured by the flow of earnings – rose by 9 percent year-on-year, more than twice as fast as in the first three quarters of the year. Losses in competitiveness resulting from earlier effective schilling appreciation have apparently subsided following the reverse movement of exchange rates in recent months. The strength of the dollar, should it continue, may give exports further momentum even if major European markets recover only hesitantly from stagnation. In tourism also, foreign demand rebounded markedly at the onset of the winter season. Hotels and other accommodations in the ski resorts were generally well booked over the Christmas holidays, benefiting also from a favorable calendar effect. Whether the latest results may be taken as early signs of a trend reversal appears doubtful, however. While the rise in the dollar and the Italian Lira may improve competitiveness also of the domestic tourism industry, its structural weaknesses would still persist. After strong growth in the first half of 1996, reinforced partly by pre-emptive buying, domestic retailers expected a sharp drop in sales after mid-year. This has not occurred as sales on a seasonally adjusted basis hardly receded. Contrary to the results of some consumer surveys, the high spending propensity for durables as well as for travel abroad does not suggest a major shake-up of consumer confidence in the face of a squeeze in disposable incomes and rising unemployment. However, it remains to be seen whether households react the same way to the second wave of fiscal consolidation measures introduced at the beginning of 1997. According to the latest WIFO investment survey, industrial companies pushed up capital spending significantly in 1996. For the current year, they envisage a further increase by around 9 percent. The good investment climate is confirmed by strong advances of goods imports. Here again, like with private consumption, the gap between pessimism expressed in business surveys and strong actual investment spending is striking. The trend towards mounting external imbalance continued in late 1996. The cumulated current account deficit for the first eleven months rose to nearly ATS 58 billion, 9 billion more than in the year-earlier period. The deterioration is almost entirely due to lower net revenues from tourism. Even for some months in the summer season, the balance of foreign travel receipts and expenditure is now negative. While on the labor market the adverse trend has come to a halt, a lasting improvement is not in sight. Apart from the seasonal component, overall employment stagnated in recent months, with the year-on-year fall swinging to a small gain. At the seasonal peak in January, registered unemployment exceeded the mark of 300,000 – for the first time since the early 1950s. Still, the year-to-year increase was insignificant. The seasonally adjusted rate of unemployment, according to national definitions, has been falling slightly for almost a year; on harmonized EU definitions it slightly exceeds 4 percent with little change from month to month. Consumer price inflation returned to an annual rate below 2 percent in January, for the first time in five months.
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