Economic Growth Dampened by Oil Price Hike, but Exceeding the Euro Area Average. Economic Outlook for 2005 and 2006

Growth of real GDP will amount to 1.7 percent this year, once more undershooting the long-term average by a substantial margin. The main retarding element is the high energy prices which will drive up the rate of inflation, while weighing on consumption of private households. Exports will keep a strong momentum after their jump in 2004. The WIFO business survey of last September suggests a pick-up in industrial confidence. However, investment in machinery and equipment has so far failed to respond and is unlikely to reach the level of last year. Since May first 2005, economic policy has taken a number of expansionary measures, such as an increase in off-budget spending on infrastructure, in outlays for research and development as well as for active labour market policy. These measures will slightly accelerate the pace of growth in 2006 to a rate just above the euro area average. The implicit budgetary burden will, however, make for some increase in the general government deficit.