Developments During the 1970S and 1980S
After a relatively smooth course throughout the 1960s, Austria was deeply affected by several international developments during the early 1970s. Like the Federal Republic of Germany (West Germany), it revalued its currency upward by 5 percent, but this proved insufficient in light of the weakness of the United States dollar.
In August 1971, when the Bretton Woods system collapsed and the price of gold was no longer maintained at US$35 per troy ounce, the Austrian government reaffirmed its decision to maintain the stability of the schilling even if it meant a potentially deteriorating competitive position with the dollar. Thus, the schilling remained closely linked to the deutsche mark through the interest rate policies of the Nationalbank (the Austrian central bank).
The Austrian economy could not help being affected, however, by the subsequent turmoil in international trade and finance, the "oil shocks," inflation, and the downturn at the end of the 1970s. By 1975 growth had slowed and inflation had risen because of higher fuel prices. Unemployment had begun to increase and would have risen faster if government-owned industries had not made an effort to maintain employment. The current account, which had remained in balance for most of the postwar period, deteriorated significantly. In addition, the budget deficit rose.
In 1979 and 1980, the Austrian economy began to improve somewhat. Growth resumed and unemployment fell. But exports did not rise as hoped, the budget deficit remained high, and the boom was short-lived. Another downturn appeared, to be overcome only at the expense of considerable fiscal stimulus in 1983 and 1984 when the government budget deficit rose from 4 to 5.5 percent of GDP. After several years of high deficits, the cost of servicing the national debt began to serve as a brake on further expansionary fiscal policies. Although unemployment remained low by the standards of other industrialized states and although the Austrian economy came through the various crises better than most economies, these developments provided little consolation for most Austrians. The only good news was that exports were rising, although the current account remained negative as the strength of the dollar drove energy import costs sharply upward.
It was only in 1985, well after global interest rates had declined from their post-1980 highs, that the economy began moving forward again at an acceptable pace. Even then, growth came more slowly and unevenly than in the 1950s and 1960s, in part because the expense of servicing the accumulated public deficit (which by then had risen to almost one-half of GDP) remained a brake on the economy as a whole. When rapid growth resumed in 1988, it took many observers by surprise. At that point, the rising trend of unemployment experienced since 1981 began to decline, and the volume of investment and exports grew sharply.
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