The Austrian economy has passed through the trough of the recession and is poised for an – at first rather modest – recovery. Real GDP is expected to rise by 2.3 percent on average between 1993 and 1998, about as fast as in the period since the mid-eighties. The expansion in output is expected to be about as strong in the European OECD countries (2.2 percent), but slightly weaker in Germany. This forecast is based on the assumption that Austria will become a full member of the European Union. During the recession of 1993 the goal of budget consolidation was temporarily set aside and automatic stabilizers became fully effective. The tax reform of 1994 entails a revenue loss of some AS 1 billion and helps to support the economy by strengthening the income of private households and the capital formation of enterprises, and by creating incentives to invest. Austria's economy, the manufacturing sector in particular, is in the midst of a rapid restructuring and rationalization process. The opening of the East, the integration process in the West, as well as the recession, have intensified the pressure to adjust. The economic outlook is based on the assumption that Austria's entrepreneurs will manage to cope with international competition. Economic success and failure is likely to be more evenly spread over all sectors of the economy than in the past. Because of the weakness of the German economy, export growth will at first be modest, but will accelerate in the course of the following years. Towards the end of the forecast period exports will also be boosted by the acceleration in growth in the Eastern countries where Austria is well positioned. In the period between 1993 and 1998 merchandise exports are forecast to grow on average by 5¾ percent in real terms (1988-1993 +3½ percent). The rate of increase in foreign exchange receipts from tourism (adjusted for price increases) will be only half as high as in the previous five-year period. The current account is expected to record a deficit of 0.2 percent relative to GDP. Given the likely effects of the tax reform of 1994 and of other policy measures (such as the increase in the contributions to unemployment insurance and the rise in the gasoline tax), real disposable income of private households will rise by 2 percent per year during the forecast period. Private consumption is likely to expand at the same rate. The savings rate of households will at first increase to 11.6 percent, but then fall gradually to 10.8 percent. A marked revival in outlays for equipment is unlikely to take place before the end of 1995. Implementing structural changes and modernizing equipment take precedence over the goal of increasing capacity. Residential construction will boost the growth in investment in structures to 2 percent per year. Gross fixed investment should rise at an annual rate of 3½ percent, about as fast as in the previous five-year period. The economic forecast by WIFO depicts a steeper increase in labor productivity than in the previous five years. This implies that employment will rise more slowly, at an annual rate of 0.6 percent (as opposed to 1.7 percent during the years 1988-1993). Because of the increase in the labor supply by 0.7 percent per year, the rate of unemployment (according to the traditional definition) should rise to 7.4 percent (after 5.8 percent). The wage settlement in the metal and engineering industries in the fall of 1993 is likely to guide wage developments beyond the year 1994. Over the period 1993-1998 compensation per employee (adjusted for price increases) is likely to rise at a rate that is ½ percentage point below the rise in productivity (output per employee). During the forecast period, neither the development in unit labor costs nor in import prices is expected to exert substantial inflationary pressure. The rate of inflation should fall to about 2½ percent by 1995 and then accelerate slightly, but is unlikely to exceed 3 percent.