Annual Report 2004

In 2004 the global economy expanded by more
than 4% in real terms. The euro area also saw
an economic recovery, recording a growth rate
of 1.8% (seasonally and working-day adjusted),
which was well above the levels of previous
years. However, from the spring of 2004 the
global upturn lost momentum, mainly because
of a surge in oil and commodity prices, a slowdown
in export activity and monetary policy
tightening in several countries induced by inflationary
pressures.
As in the previous year, inflation in the euro
area as measured by the Harmonised Index of
Consumer Prices (HICP) stood at 2.1% in
2004, driven largely by energy prices. In view
of a favorable medium-term outlook for price
developments, however, the Governing Council
of the ECB decided to leave key interest rates
unchanged at their historically low level. Inflation
expectations in 2004 were stable and in line
with the Governing CouncilÕs medium-term
HICP inflation target for the euro area of below,
but close to, 2%. The EurosystemÕs monetary
policy continued to enjoy a high degree of credibility.
By contrast, the credibility of the sustainability
and soundness of fiscal policy in the euro
area was put to the test in 2004. Half of the euro
area countries recorded deficit ratios of around
or above 3%, and debt ratios exceeded 60% in
eight countries. In March 2005 the reform of
the Stability and Growth Pact led to changes
in, and a weakening of, EMUÕs fiscal policy
framework, the consequences of which are not
yet foreseeable. Greater scope for discretionary
decision-making entails an even higher degree of
responsibility for policymakers in safeguarding
the sustainability and long-term growth orientation
of fiscal policy. The Governing Council
of the ECB is firmly convinced that sound public
finances are indispensable for sustainable economic
development in the euro area.
2004 was also marked by the mid-term
review of the Lisbon strategy, which revealed
that — while some progress has been made with
regard to employment, the network industries
and the financial services sector — European
research, innovation and education systems still
require reform. Member States should swiftly
implement further reforms at the national level
within the framework of national growth strategies
or action plans.
Economic policymaking in Austria was
characterized by further reforms in 2004: The
reform of the Austrian pension system will
render pension schemes more sustainable and
will contribute to safeguarding their long-term
financing. The corporate tax and income tax
reforms will strengthen both AustriaÕs position
as a business location and real disposable income.
The IMF and the OECD have acknowledged
these reform efforts. The reform process
needs to be continued to guarantee AustriaÕs
competitiveness and prosperity.
AustriaÕs economy gathered considerable
steam in the first half of 2004, mainly driven
by booming external trade. At 2%, economic
growth in 2004 clearly exceeded the levels of
the previous two years and was also slightly
higher than the euro area average. While the
deceleration of economic growth in the euro
area toward the end of 2004 also affected
Austria, investment remained lively. At 2%,
AustriaÕs inflation rate stood slightly below the
euro area average in the reporting year.
AustriaÕs deficit ratio according to the
Maastricht definition came to 1.3% of GDP in
2004, which was less than half of the euro area
average. The governmentÕs 2005 tax reform is
going to raise the deficit ratio to 1.9%. Under
its stability program, Austria is to achieve a balanced
budget and a debt ratio of below 60% of
GDP by 2008. The OeNB welcomes the plans
to reduce the tax-to-GDP ratio to around 40%
as early as in 2006; at the same time, however,
the reduction of the government spending ratio
should be speeded up.
The accession of ten new Member States to
the European Union on May 1 was a landmark
achievement in 2004. EU enlargement fosters
AustriaÕs economic potential, as Austrian businesses
have already been actively expanding into,
and cooperating with, AustriaÕs neighboring
countries in Eastern Europe. Enlargement has
validated the OeNBÕs decision to put a special
focus on Eastern European issues, which was
taken many years ago.
The IMFÕs Financial Sector Assessment Program
confirmed the high resilience of the
Austrian financial system to shocks and the
excellent cooperation between the OeNB and
the Austrian Financial Market Authority (FMA).
The OeNB has redesigned its website
(www.oenb.at) and relaunched several of its macroeconomic
and statistical publications, namely
Monetary Policy & the Economy, the Workshop
series, Focus on European Economic Integration
as well as its exclusively German publication
Statistiken — Daten & Analysen to further
improve the quality, scope and accessibility of
the analyses and data it provides in the service
of economic policy and the Austrian public.
Klaus Liebscher
Governor
Statement
Annual Report 2004 ×
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