The Austrian economy was able to take advantage of various positive external developments, notably eastern enlargement of the European Union. Export competitiveness was strengthened, however mainly in areas with a traditional comparative advantage. While the labour market functions well overall, tensions become visible through high seasonal unemployment, high youth unemployment by historical standards and a growing, although still small incidence of long-term unemployment. Government debt is still relatively high and fiscal consolidation relies to some extent on one-off measures. Productivity growth is too much dependent on capital deepening and obstacles to labour force participation hold down trend growth. The key challenges for the Austrian economy to maintain its good economic performance include making the government sector more efficient, reforming federal fiscal relations, boosting productivity growth and removing obstacles to higher labour force participation.