Update of the Medium-term Forecast for the Austrian Economy from 2016 to 2020

Following a period of sluggish growth averaging ½ percent p.a. from 2012 to 2015, economic activity in Austria is expected to pick up over the medium term, averaging at a moderate pace of +1½ percent p.a. between 2016 and 2020. Foreign trade, government consumption and investment spending will contribute less to economic growth than prior to the financial market crisis and the recession 2008-09. Growth of private consumption should pick up from 0.5 percent p.a. 2011-2015 to 1.4 percent p.a. over the forecast period, receiving stimulus from higher disposable income due to the tax reform 2015-16, and from additional demand due to refugee immigration. While the moderate GDP growth will allow employment to increase by 1.1 percent p.a. from 2016 to 2020, the creation of new jobs will not prevent unemployment from rising further until 2018, since labour supply, both domestic and from abroad (driven also by the inflow of refugees), will outpace demand. The rate of unemployment may reach almost 10 percent (national definition) by 2017 and change little thereafter. Inflationary pressure will remain moderate over the medium term, at an annual rate of 1.7 percent. The inflation rate will be thus higher than the average in the euro area, making for somewhat smaller real income gains in Austria. Given the projected cyclical profile and the assumptions on the economic policy settings, a balanced general government budget, whether in nominal (Maastricht definition) or structural terms, may be difficult to achieve over the forecast horizon.