According to the latest WIFO business survey carried out in cooperation with the EU among 2,700 firms in the manufacturing sector, capital formation by the construction industries and public utilities makes a significant contribution to the recovery, even though it is less dynamic than in the previous year. In general, the surveyed companies plan to increase their investments by 8.3 percent. Together with the sectors not included in the survey this amounts to a real increase of total investment by 2 percent in 1997. For 1998 WIFO forecasts real investment growth to reach 3.7 percent. In the first months of 1997 the Austrian manufacturing industry continued its gradual recovery. Real output growth is expected to be 3 percent this year and 4 percent in 1998. These figures are confirmed by the survey results according to which companies expect a nominal increase in sales by 5.0 percent. The latest WIFO business survey also finds that the economy appears to have stabilized. Starting in the second half of last year, an increasing number of companies have been voicing optimistic expectations about the business climate in general, an increasing stock of orders, especially from abroad, and rising output. Capacity utilization similarly improved over the previous year. In some sectors companies respond to rising demand by hiring new staff. This time, however, the recovery of the manufacturing sector is not comparable to the usual upturn after a recession. The strength of the recovery varies from sector to sector and these is some doubt whether it can be sustained. The improvement is primarily driven by export demand. The Austrian manufacturing sector benefits from the upswing in the USA and some of the western European countries. Furthermore, its competitiveness was improved by the real devaluation of the schilling compared to its main competitors. A look at the export performance in the first months of 1997 confirms this view. In 1996 industrial investment grew by fully 27.3 percent in terms of value according to the latest survey. Firms reported almost no revisions of the figures given in previous surveys. Compared to the steep rise of last year, the companies surveyed plan only a moderate increase in their capital spending by 4.6 percent in nominal terms for 1997, which translates into a price-adjusted increase of 4 percent. Investment activity is mainly driven by the chemical industry (+24.5 percent), followed by the basic goods industry (+11.3 percent). The suppliers of building materials, the technical manufacturing industries and the traditional goods industry, which have been under severe pressure to make structural adjustments over the last years, in contrast intend to cut their investment plans. As a consequence of the severe recession in the building industry due to the sharp decline in construction demand, investment in machinery and equipment grew only slightly last year. This year there are first signs of an improvement in construction demand. The building industry intends to increase its investments by 3 percent, which amounts to a small increase in real terms. As in previous years, Austrian electricity companies revised their optimistic plans considerably downwards, with actual spending stagnating at ATS 12.7 billion, the lowest level since 1991. Ex-ante investment plans are traditionally very optimistic. The figures given for 1997 point to an increase of 29.7 percent. But bearing in mind past behavior, this will at best translate into a small increase of 1 or 2 percent ex post.