The Austrian economy is set to expand by 0.7 percent in 2003, significantly below the long-term trend for the third consecutive year. However, unlike in 2001 and 2002, growth is sustained this year by domestic demand. Private consumption and trade volumes have picked up somewhat, as has investment in construction and business equipment. Prospects for 2004 continue to be highly uncertain. If the nascent optimism suggested by business and consumer surveys in Europe became confirmed by a recovery in output, a moderate cyclical upturn should come under way. Austria's GDP should then grow by 1.4 percent in volume. Over the whole projection period, growth will not be strong enough as to lead to a turnaround on the labour market. The rate of unemployment will increase slightly to 7.1 percent of the dependent labour force. The general government balance will in both years register a deficit corresponding to about 1 percent of GDP. Price stability is set to remain high, with an inflation rate around 1¼ percent.