Growth to Slacken in 1999 – Tax Reform to Boost Domestic Demand in 2000. Economic Outlook for 1999 and 2000

Economic growth in Austria is expected to moderate to 2.2 percent as a result of the slowdown in the world economy. Exports, which have long been the mainstay of the upswing, are forecast to expand only modestly. Economic activity continues to be bolstered by strong consumer spending which benefits from high real income gains. Real net wages and salaries are expected to rise by 2¾ percent in the current year and by 3¼ percent in the year 2000, with part of the gains due to the "family" package and the tax reform 2000. On the downside, the cost of the tax reform and of the "family package" will raise the Federal budget deficit in the year 2000. An increase in the general government deficit to 2½ percent of GDP seems likely, unless strict discipline is applied to government expenditures. In accordance with most international forecasting institutions, WIFO expects economic growth to accelerate to 2.6 percent in the year 2000. In this scenario, which at present is the most likely, the economic slump which began in the middle of 1998 proves to be only temporary. The international risks which might justify a more pessimistic outlook remain substantial, however. The expected slight drop in the unemployment rate from 4.5 percent in 1998 to 4.2 percent in 2000 corresponds to a marked expansion in employment resulting from the rise in labour-intensive domestic demand.