Growth of real GDP is expected to moderate from 3.4 percent in 2007 to 2.2 percent in 2008. A first outlook into 2009 suggests a rate of growth of 2 percent. The deceleration is the consequence of a less favourable international growth environment, with the imminent cyclical downturn in the USA, the persistent crisis on financial markets and the marked appreciation of the euro. In Austria, exports and manufacturing output will therefore advance at a slower pace, following the boom in the last two years. Further ahead, also investment in machinery and equipment as well as construction will lose some of its previous momentum. In spite of the benign business conditions, the upswing of the last few years has not led to a revival of consumer spendings. The main reason has been the sluggish growth of earnings. Meanwhile, also the acceleration of inflation (with a projected rate of 2.6 percent in 2008) is squeezing households' real disposable income. The business cycle slowdown will prevent a further decline of unemployment or a reduction of the budget deficit.