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SCMP Reporter

In a couple of months, Austrians are in line to reap the benefits of large- scale tax reform.

 Economic forecasters believe that while the reforms will strain the government finances, a reduction in the tax burden will help to increase private consumption.

  Economists suggest that consumers are likely to spend more, as wages and salaries improve, though modestly, this year and next. The level of income, of course, is a key determinant of consumption.

  Strong domestic demand is comforting news for Austria's economy, forecast to grow 2.2 per cent this year and 2.6 per cent in the next year.

   The Austrian Institute of Economic Research (Osterreichisches Institut Fur Wirtschaftsforschung, or WIFO), notes in its latest quarterly survey, that 'lively domestic demand' will help to offset the slower rate of export growth.

   This is also having an influence on the labour market, as it helps to generate employment, especially in the services sector, thus helping to ease the jobless situation, which is currently at 6.1 per cent of the total workforce. Thousands of jobs have been added in the services sector.

 Overall, unemployment has fallen for the first time since 1994, the research institute says. Unemployment is expected to fall further.

 Other key economic indicators have also been encouraging.

   Inflation has eased, largely because of falling prices of imports, stable unit labour costs and moderate wage increases.

   This year, consumer prices are forecast to 'edge up by an annual rate of 0.6 per cent, followed by 1 per cent next year', assuming an upturn in global commodity prices.

   Exports, which were affected by the financial crisis, are also expected to pick up slightly. The research institute, says that the 'fall in demand should have bottomed out to give way to a better outlook for a turnaround'.

   According to the Austrian Central Statistical Office, the annual growth of exports volume and value, will not be more than 4.5 per cent.

   Much like exports, industrial activity was also slow early this year.

   But the research institute says business confidence has improved and business are upbeat for prospects in the second half of the year.

   'A major factor has been the gradual stabilisation of the economies in Southeast Asia,' the institute, says.

  Taking into account the key indicators and other factors, the institute says there are heartening signs the economy will emerge from the slump that began in the middle of 1998. In 1998, real GDP growth was 3.3 per cent.

 'Signs of an upturn have been observed in Austria as well as in the euro zone as a whole in the first quarter, with GDP rising 0.4 per cent (from the previous period, seasonally adjusted),' the survey says.



Economic prospects improving