Strong Growth in 2007, Sizeable Cyclical Risks for 2008. Economic Outlook for 2007 and 2008

Growth of real GDP in Austria is expected at 3.4 percent for 2007, broadly maintaining the pace of last year. With the stimulus from buoyant exports being transmitted to a rebound in investment, the current upturn has taken an important step forward. Still, the business cycle may not advance to the stage of an outright boom. First, with real net incomes per capita stagnating, private consumption is unlikely to enjoy a strong recovery. Second, the marked slowdown of US growth, the appreciation of the dollar vis-à-vis the euro and the crisis of global financial markets will weigh on activity next year. GDP growth may thereby slow to a projected 2.4 percent. Strong growth of demand and output drives employment up by 60,000 this year. However, the corresponding fall in unemployment, by 15,000, is rather limited. The rate of unemployment is abating to 4.3 percent of the labour force, but may not go down much further next year. Inflation is accelerating slightly, notably on account of rising food prices and higher energy costs. Headline inflation is projected at 1.9 percent and 2.0 percent for 2007 and 2008, respectively. Lively activity is also boosting government revenues, allowing the general government deficit to shrink to around ½ percent of GDP.