Cyclical Upturn, with Structural Problems Persisting. Medium-term Projections for the Austrian Economy until 2006
The business cycle recovery is currently proceeding at a slow pace. The medium-term forecast for the Austrian economy expects, however, an acceleration in 2003 and 2004. The upswing is mainly driven by external forces stimulating exports and business investment in machinery and equipment. Growth of domestic demand, initially lagging behind, will lend increasing support to overall activity towards the forecast horizon. Nevertheless, due to the assumed slowdown of the international business cycle, a marked deceleration of GDP growth should be expected for 2005 and 2006. Over the period 2001-2006, the Austrian economy is projected to expand at an annual rate of 2.3 percent in real terms, slightly below the EU average. Employment will post sizeable gains as the recovery proceeds, whereas the decline in unemployment may be held back by the ample supply of foreign labour. Inflation is set to remain subdued. General government finances are likely to move to a small surplus that should not, however, be taken as offering scope for a tax cut. Budgetary policy ought to make structural reform its major focus of attention.
Medium-term projection; macro-economic development; Austria; Cyclical Upturn, with Structural Problems Persisting. Medium-term Projections for the Austrian Economy until 2006
The Austrian economy is about to enter a phase of cyclical upturn that should last until 2004, when growth may rise above 3 percent. For 2005 and 2006, a marked slowdown should be expected. The business cycle is determined primarily by international developments exerting a direct impact on exports and investment in machinery and equipment. The further course of the world economy also holds the major risks to the projections. Domestic demand, while initially lagging behind the growth of output, will lend increasing support to overall activity towards the forecast horizon. Employment will post sizeable gains as the recovery proceeds, although a fall in unemployment may be held back by the ample supply of foreign labour. Financial scope in government households will remain tight, as policy is facing major challenges in shaping budgetary structures and in the areas of education and innovation.
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