According to the Austrian Institute of Economic Research (WIFO), gross domestic product (GDP) is expected to grow by 2.2% in 2008. This rate of growth is below the level of the previous year due to the instability in financial markets caused by the US real estate crisis and the strong appreciation of the Euro. In an international comparison, the Austrian economy is expected to continue growing more strongly than the rest of the Eurozone.
WIFO projects an annual inflation rate of 2.6% for all of 2008 (2.2% in 2007). Higher energy and food prices are the main factors responsible for the increase in inflation. In contrast, the unemployment rate is expected to remain constant at approximately 4.2% (as defined by the EU). Domestic consumption is also expected to remain unchanged versus the previous year, based on WIFO’s projected growth rate of 1.9% for 2008.
Central and Eastern Europe
The International Monetary Fund (IMF) is projecting a slight slowdown in economic growth in Central and Eastern Europe. The US subprime crisis is not having a negative effect on economic development as measured by the GDP in the CEE region. The IMF expects growth of 4.6% for the region, which is considerably above the rate expected for Western Europe. Economic growth in the CEE region is mainly driven by strong domestic demand, as well as rising exports resulting from recent EU accessions.
Inflation is increasing in the growth markets of Central and Eastern Europe due to strong increases in oil and food prices. The European Central Bank (ECB) projects that prices in CEE countries will rise by more than 4% in 2008. The inflation rate is not expected to decrease until 2009.
The solid growth recorded in the CEE region in past years was primarily due to strong growth in personal income, leading to a steady increase in the prosperity of the population in Eastern European countries. According to a study by RegioData Research, average household purchasing power increased by EUR 400 in 2007. This trend is resulting in a rise in personal consumption, which is also associated with an increase in the demand for insurance.