of the

Rome, 9-13 October 2000

Federal Ministry of Agriculture and Forestry

Forestry Department

&

Association of the Austrian Wood Industries

Vienna, 25^th of September 2000

The economic upswing continues, with the manufacturing index in April up by 12 percent from the year before. This development is due to a substantial stimulus of rising exports and investment activities. In accordance with the favourable economic situation, unemployment is declining noticeably, although employment growth has slowed down. The rate of inflation jumped to 2.7 percent in June, with a half percentage point being due to the increase of consumer taxes and 1 percentage point to high energy prices.

The recovery of the Austrian economy continues at an undiminished pace. During the first four months of the year, manufacturing output exceeded the previous year's level by almost 12 percent. The production of intermediate and investment goods increased most strongly. Benefiting from favourable economic developments abroad and the weakening of the Euro, exports constitute a major factor in the current upswing. During the first four months of the year, exports to EU countries increased by 12 percent, while exports to third countries even grew by 17 percent. Private consumption is flourishing, not least due to the net income effects of the tax reform and the package of family-related measures: retail sales (excluding car sales) grew by 4 percent in real terms during the first four months; new passenger car registrations remained slightly short of the previous year's level.

Currently, consumer prices are increasing faster in Austria than in the Euro zone. Owing to the increase of the engine-power related insurance tax and other charges as well as rising energy prices, the rate of inflation rose to 2.7 percent in June, thus reaching its highest level since 1994. The wage increase negotiated during the most recent round of collective bargaining (+2.0 percent) is lower than the current inflation rate.

The reduction of unemployment exceeds the growth of employment in Austria, which means that some of the previously unemployed have left the labour market.

Together with the declining supply of domestic labour, this points to an increasing trend towards early retirement � particularly in view of the fact that access to early retirement is about to be made more difficult.

Compared with the spring figures, the growth of employment (+17,000 in July) has been halved. The number of Austrian citizens in employment grew by about 5,000 over the previous year's level. At the same time, the number of registered unemployed fell by 27,500. The reduction was strongest among persons aged

over fifty years (�8,600). In view of the sluggish development of employment, this appears to be due, above all, to anticipation effects (early retirement) rather than a higher number of jobs for senior workers.

Economic development in 1999 and the opening towards the European market also affected forestry. Although the Federal Austrian Forests (Österreichische Bundesforste AG) has reduced the fellings by 4 %, the production (annual fellings) and the investments in forestry increased slightly. The increase in small scale forestry (smaller than 200 hectare) is caused by the intensive cooperation between the forest owners. Additionally, the increased demand for timber products abroad improved the profits in forestry, as compared to 1998. The recovery of the timber market resulted in stable roundwood and also sawnwood prices.

The upswing of the business cycle - one result of the development of demand and production in the southern and western economic partner countries - also depends on the further development of the currency exchange rate Euro-Dollar. Additionally, economic expansion in the countries of central and eastern Europe - due to highly dynamic patterns of private consumption � and especially the effects oft the storm disaster in central/western Europe is likely to have a negative impact on the prices for Austrian roundwood, as large quantities of cheap roundwood imports have a strong impact on the domestic timber market.

The general economic situation had positive effects on the sawmilling industry. 1999 saw very diverse timber market situations in different countries, mainly due to the development of the currency exchange rates. There is an upward trend of the US Dollar, which has been persisting since the introduction of the Euro. Currencies of notoriously soft value have been upvalued, such as the Swedish Crown, which increased the competitiveness of Austrian products. This resulted in increased sawnwood production and satisfactory sawnwood sales at stable prices in 1999. The total exports of coniferous sawnwoods increased by 19%, while the imports even grew by 24% in 1999.

Though the economic activity of the construction sector increased and proactive market politics, along with Scandinavian competition effected the market, there were profits in sawnwood from Austria's main customers (Italy, Japan and Switzerland) in 1999.

The current upswing of the construction sector and rising domestic demand forecast increasing sales of Austrian sawnwood in Europe. In 2000 to 2001, positive impacts on the economic cycle, mainly emanating from Europe, the USA and to some extend from East Asia, may result in an improved export situation for the Austrian sawmilling industry, due to favorable currency exchange rates.

Similar to the other sectors of economy, pulp and paper industries showed a good in 1999. The main focus of the Austrian paper and pulp industries were increased investments in, environmentally-sound processing techniques which will provide the main basis for market politics in the next years. Nonetheless, the economic cycle impaired the production of the sector. There is reason to believe, though, that improved currency exchange rates and economic growth in the countries in transition to market economy will favour trade in 2000 and continue on in 2001.

The woodprocessing industry recorded a positive development in 1999. Compared to 1998, there was a trend away from areas depending on construction and furniture production towards ski products and wood materials, mainly solid wood panels.

The increase in the orders position in 1999 led to a positive development in employment in the woodprocessing industry which might also be due to the medium-sized business structure of the sector. Foreseeably, the growth rate of the woodprocessing industry exports will increase over the course of 2000 and 2001.