Euro area debt crisis weighing increasingly on domestic activity. Economic outlook for 2012 and 2013

ABSTRACT IN GERMAN: Die österreichische Wirtschaft wird nach der günstigen Entwicklung zu Jahresbeginn zunehmend durch die Schwäche im Euro-Raum beeinträchtigt. Die anhaltenden Diskussionen über die gemme wirtschaftspolitische Ausrichtung zur Lösung der akuten Staatsschuldenproblematik machen eine Prognose besonders unsicher. Die vorlaufenden Indikatoren für die heimische Wirtschaft deuten auf eine gedämpfte Entwicklung in naher Zukunft hin. Vor diesem Hintergrund wird heuer ein Wirtschaftswachstum von nur 0,6% möglich sein. 2013 sollte sich die Dynamik leicht verstärken (BIP real + 1,3%). Die Arbeitslosigkeit wird trotz gleichzeitig steigender Beschäftigung zunehmen. // ABSTRACT IN ENGLISH: Economic policy in the euro area is confronted with major challenges. Against this background it is extremely difficult to project international and domestic economic developments. The present forecast is based on highly benign assumptions concerning the resolution of the current crisis. Subject to these assumptions. Austria's GDP should grow by 0.6 percent this year and by 1.3 percent in 2013, with uncertainty being particularly high for next year. Latest developments of the sovereign debt crisis in the euro area and the reaction of economic policy currently overshadow the course of the business cycle. The outcome of the Greek elections and the swiftly installed new government have done little so far to reassure financial markets about the situation in the euro area. Interest rates on Italian and Spanish government bonds have increased once again, such that new credit taken up by the two countries aggravates the burden on their public finances, thereby undermining further the confidence of financial markets. At the same time, some euro area countries like Germany and Austria observe important inflows of financial funds which lower the yields on their government bonds. The sizeable differences between interest rates inside Monetary Union give rise not only to economic frictions, but also to political tensions. The lingering uncertainty about a resolution of the crisis has a negative impact on decisions of both investors and consumers. The present forecast is based on assumptions that appear optimistic from the present perspective: Monetary Union is maintained in its present composition (other scenarios would have severe consequences for the banking system that are difficult to predict); the cross-country differences in interest rates on government bonds will diminish a