The projections have been elaborated under a high degree of uncertainty. The terrorist attacks in the USA have hit the world economy in what has been an already fragile business cycle situation. The economic consequences will depend on further international developments and the response from economic policy in the industrialised countries. Under the cautiously optimistic assumptions underlying the forecast, the U.S. economy should recover as from spring 2002, driven by monetary and fiscal expansion. A pick-up also in Europe could follow with a short time lag, if automatic budgetary stabilisers are allowed to operate to full extent. In such a scenario, real GDP in Austria may grow by 1.3 percent in 2001 and 1.9 percent in 2002. The sharp slowdown is caused not only by weaker exports, but also by a slump in construction activity. The slow pace of growth cannot prevent unemployment from rising above the mark of 200,000. Inflation, however, is set to decelerate further. Due to the effect of the automatic stabilisers, the government balance in 2002 may be in deficit of some ATS 10 billion.