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GKI forecasts low inflation, rising earnings

Inflation this year should be low and earnings should be going up, said a survey by economic think tank GKI and Erste Bank, made public overnight.  

GKI said it expected introduction of budget reforms following April's parliamentary elections, which, in turn, should bring central bank interest rates down. Analysts see the growth rate for 2006 as 4.2%, about the same as it was in 2005. They expect inflation to drop to a record low, and employment to stay at about the current level. In January, they reported, the inflation rate dipped below 3%, a thirty-year low. In coming months, as the effects of a 5 % drop in the value-added tax, introduced at the start of the year, kick in, the consumer price index should not rise more than 2%. But, with energy and public service prices picking up towards year-end, the overall inflation rate for the year may be closer to 3 than to 2%, despite predicted drops in the prices of clothing and durable consumers.

The report noted that the employment level had not changed in 2005, nor was it likely to change in the current year. Real earnings, however, up by 6.3% in 2005, partly because of later bonus payments to public sector workers, should rise by an equivalent amount in 2006, it said. Within the overall 4.2 % growth rate, GKI wrote that the building industry will continue its dynamic expansion, which in 2005, was 17%. Within that, it noted, construction of buildings grew by 12.5%, while other construction - such as motorways - was up by 21%. Industrial output was about the same in 2005 as a year earlier, although the expansion in exports slowed from 15% to 11. However, domestic sales, which were down by 1 % in 2004, grew by over 4 % in 2005. For 2006, the pundits say exports and imports should grow at the same rate.