VZCZCXRO4407
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHVI #1889/01 3590905
ZNR UUUUU ZZH
R 240905Z DEC 08
FM AMEMBASSY VIENNA
TO RUEHC/SECSTATE WASHDC 1782
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUCNMEM/EU MEMBER STATES

UNCLAS SECTION 01 OF 03 VIENNA 001889 
 
SIPDIS 
 
TREASURY FOR FTAT, OCC/SIEGEL, AND OASIA/ICB/ATUKORALA 
TREASURY PASS FEDERAL RESERVE, FINCEN, AND SEC/JACOBS 
USDOC FOR 4212/MAC/EUR/OWE/PDACHER 
PARIS ALSO FOR USOECD 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EUN AU
SUBJECT: Economic Outlook for Austria - 2009 To Be 
First Recession Year Since 1981 
 
REF: (A) VIENNA 1484; (B) VIENNA 0621 
 
¶1.  SUMMAARY:  Austria's economy began to weaken in the 
second quarter in reaction to the world downturn and is 
now in recession.  The two leading Austrian economic 
institutes downgraded their GDP growth estimates for 
2008 to 1.8%;  2009 is expected to be the first full- 
year recession since 1981.  The economy is projected to 
contract by around 0.5% in 2009 due to shrinking 
exports and investments, despite modest growth in 
private consumption.  For 2010, the institutes project 
a recovery with growth of 0.9-1.3% but warned of 
continued downside risks.  Unemployment will rise to 
3.9-4.1% in 2009.  Inflation will ease from 3.2% in 
2008 to 1.2-1.5% in 2009.  The budget deficit will 
spike from only 0.6% of GDP in 2008 to about 2.8% in 
2009 and most likely above 3% in 2010.  Bleak as they 
are, these forecasts are still more optimistic than 
outside (EIU) estimates.  END SUMMARY. 
 
Forecasts Rushing to Catch Up with Recession 
-------------------------------------------- 
 
¶2.  The Austrian Institute for Economic Research (WIFO) 
and the Institute for Advanced Studies (IHS) recently 
issued revised growth projections for 2008 and 2009 and 
a first outlook for 2010.  The financial crisis has 
reached Austria's real economy and especially exports, 
the driving force behind growth in recent years.  The 
institutes now peg 2008 growth at 1.8%. Quarter-to- 
quarter GDP data show the rapid slide: 
     2008 Q1:  0.5% 
          Q2:  0.3% 
          Q3:  0.1% 
          Q4:  Recession (ongoing) 
 
2009: Austria's First Recession Year Since 1981 
--------------------------------------------- -- 
 
¶3.  Three months ago, the institutes still projected 
growth of 0.9-1.2% for 2009:  now they say with virtual 
certain that Austria will have its first full-year 
recession since 1981 (it had a two-quarter mini- 
recession in 1992/1993).  The economy is projected to 
shrink around 0.5% in 2009, with the first two quarters 
being the worst.  Stabilization but no growth is 
expected for the latter part of the year.  Exports, so 
far the drivers of the Austrian economic growth are 
projected to decline in 2009, as will investment. 
Private consumption will grow slightly (not enough to 
offset other negative GDP components) based on over 3% 
growth in after-tax incomes (negotiated wage increases, 
declining inflation and a planned 2009 tax cut).  At 
the same time, the savings rate will increase from 
11.8% of disposable income in 2008 to 13.1% in both 
2009 and 2010.  GOA fiscal stimulus (infrastructure 
projects, measures to stimulate investments, credit 
guarantees and subsidized loans for SMEs, etc.) will 
help make the recession is Austria less severe than in 
the Euro-zone (minus 1.2%).  Inflation is no longer a 
problem. 
 
Modest Recovery in 2010? 
------------------------ 
 
¶4.  For 2010, the institutes expect modest growth of 
0.9-1.3%, due in part to medium-term impact of fiscal 
stimulus.  Exports are expected to recover somewhat, 
investment will grow slightly, and private consumption 
will continue to be a stabilizing element. 
 
Other Forecasts and Risks Involved 
---------------------------------- 
 
¶5.  This year's Austrian forecasts have tracked the 
severe downward slide in the world economy. 
In October, WIFO and IHS had projected 2009 growth of 
0.9-1.2% and the IMF 0.8%; November forecasts of the EU 
Commission and the OECD were for 0.6% and -0.1%, 
respectively; the December forecasts of the Austrian 
National Bank (OeNB) was for -0.3% and of Bank Austria, 
Austria's largest bank, for -0.5%.  The December 
forecast of the Economist Intelligence Unit is even for 
-1.2%, and now the OeNB is also talking of a deeper 
recession than currently predicted. 
 
VIENNA 00001889  002 OF 003 
 
 
 
¶6. At a press conference, WIFO Director Karl Aiginger 
and IHS Director Bernhard Felderer talked of a severe 
and prolonged recession with overwhelming downward 
risks.  Projections assume a slow calming of the 
financial crisis.  Both economists approve of the GoA 
economic stimulus package but would prefer future- 
oriented measures in lieu of "emergency" measures. 
Aiginger and Felderer urged the GoA to swiftly 
implement the bank rescue package -- since the GOA has 
still not paid its promised funds to re-capitalize 
banks. 
 
Assumptions for Growth Forecasts 
-------------------------------- 
 
¶7.  The institutes based their revised 2009/2010 
forecasts on the following assumptions: 
-- U.S. growth of -0.8% (IHS) / -1.7% (WIFO) in 2009 
and 0.25% (WIFO) / 1.5% (IHS) in 2010; 
-- Euro-zone growth of -0.5% / -1.2% in 2009 and 0.5- 
1.3% in 2010; 
-- EU-27 growth of -0.5% / -0.8% in 2009 and 0.7-1.3% 
in 2010; 
-- German growth of -1% / -1.2% in 2009 and 0.4-1.3% in 
2010; 
-- oil $55 per barrel in 2009 and $60-70 in 2010; 
-- USD/EUR 0.77-0.80 in 2009 and 2010 (see annex) 
 
Can the Labor Market Sail Through? 
---------------------------------- 
 
¶8.  The labor market is deteriorating quickly but not 
as severely as expected.  After record employment 
growth of 2.4% in 2008 and a low unemployment rate of 
about 3.5%, the institutes project an unemployment rate 
of 3.9-4.1% in 2009 and 4.1-4.7% in 2010.  If forecasts 
hold, 4.7% is still below the levels of 2004-2006, 
years with good economic growth.  COMMENT: The GOA, 
which will soon hold an "auto summit" to address the 
crisis in Austria's automotive supplier industry, does 
not appear to share this optimism. 
 
Budget Deficit To Exceed 3% of GDP Soon 
--------------------------------------- 
 
¶9.  The federal budget benefited from strong revenues 
though the first half, but the GoA spent those revenues 
in pre-election handouts to compensate for inflation 
(reftels) with a deficit of 0.6%/GDP for 2008.  The 
2009 budget is not yet available, but economic 
stabilization measures (about 2% of GDP) will drive the 
public sector deficit to at least 2.5-2.8% in 2009 and 
3.2-3.3% in 2010.  Aiginger and Felderer see no problem 
in exceeding the 3% Maastricht deficit limit, but 
complained that the GOA missed its chance to run 
surpluses in good years would have given greater scope 
for action now.  They criticized the GoA's data 
submission (reported to Brussels for the 2007-2010 
stability program) as unrealistic.  NOTE: Finance 
Minister Proell is expected to submit the 2009 federal 
budget to Parliament on April 21; final parliamentary 
approval is scheduled for May 29, 2009. 
 
¶10.  Statistical Annex 
 
                            Forecasts of 
                      Austrian Economic Indicators 
                   (percent change from previous year, 
                        unless otherwise stated) 
 
                      WIFO     IHS      WIFO     IHS 
                      2009     2009     2010     2010 
Real change: 
GDP                   -0.5     -0.1      0.9      1.3 
Manufacturing         -2.8      n/a      2.0      n/a 
Private consumption    1.0      1.4      1.0      1.1 
Public consumption     1.0      0.3      1.0      1.0 
Investment            -3.8     -1.9      0.3      0.6 
Exports of goods      -0.5     -2.0      1.5      3.0 
Imports of goods       0.3     -1.0      1.3      2.3 
 
Nominal (EUR billion) 
GDP                  285.4    286.9    291.7    295.7 
 
 
VIENNA 00001889  003 OF 003 
 
 
Other indicators: 
GDP deflator           1.7      1.7      1.3      1.8 
Consumer prices        1.2      1.5      1.5      1.7 
Unemployment rate      3.9      4.1      4.1      4.7 
Current account (in 
    percent of GDP)    2.6      n/a      2.4      n/a 
Exchange rate 
 (US$ 1.00 in Euro)    0.80     0.77     0.80     0.77 
 
Note: 
WIFO - Austrian Institute for Economic Research 
IHS - Institute for Advanced Studies 
 
GIRARD-DICARLO