Oil Price Hike Driving Up Inflation, Dampening Economic Growth. Economic Outlook for 2008 and 2009

  • Markus Marterbauer

In 2008, the Austrian economy is set to grow by 2.3 percent in volume. While lively activity in manufacturing, construction and tourism boosted GDP in the first quarter more strongly than expected earlier this year, a cyclical slowdown is under way. A major factor is the unabated increase in oil prices on world markets, which drives up inflation to a projected average rate of 3.5 percent this year. The implicit squeeze in household real disposable income restrains the growth of private consumption. The business cycle downturn spreading from the USA to the other industrialised countries will weigh on growth of Austrian exports, industrial output and investment. In 2009, therefore, GDP growth is expected to moderate to 1.4 percent. Whereas employment is posting strong gains in 2008, the downward trend in unemployment may turn around next year.