Real GDP in Austria expanded by no more than 1.1 percent in 2001, as a result of subdued domestic demand and a marked slackening of exports and equipment investment. Driven by a recovery in the USA and supported by low oil prices, activity may stage a strong rebound as from next spring. Under these assumptions, GDP may grow by 1.2 percent in 2002, accelerating to a rate of 2.8 percent in the following year. The sharp cyclical downturn is putting strain on the labour market and on public finances. Employment is set to decline in 2002, accompanied by a jump in unemployment. With automatic stabilisers operating, the general government balance will slip into a temporary deficit in 2002. Inflation should decelerate markedly under the impact of falling energy prices. The cyclical stabilisation programme adopted by the federal government, while unlikely to prevent unemployment from rising sharply in winter, is nevertheless providing incentives to raise the economy's growth potential over the longer term.