Consolidated management report

3. ECONOMIC ENVIRONMENT, DEMAND AND PRICE DEVELOPMENTS

Economic factors

The Austrian economy will expand at a considerably slower rate in 2008 than was seen in 2007 (+3.1%). WIFO and IHS both forecast economic growth of 2%. GDP growth in the entire Eurozone is expected to reach only 1.2%. The decisive factors behind this development are the decline in the driving forces behind recent economic growth, namely exports and industry, as well as higher energy prices, a decline in salaries adjusted for inflation, and consumer spending which remained low as a result. The inflation rate forecast for 2008, 3.4%, is the highest experienced in Austria since 1993 (3.6%). If one removes international determinants such as energy and food from the equation, core inflation amounted to only 2.5%. This will be compounded by the impact of the global financial crisis on the real economy which is expected to further dampen economic development and be accompanied by a rise in unemployment.

Temperature developments

Measured in terms of total heating degree days, the standard unit used to measure temperate-related energy requirements in the energy sector, the average temperatures in the supply area served by Wien Energie during the reporting period were slightly above those of recent years. The above-average temperatures during the winter months of January, February and March 2008 had a negative impact on gas and heating sales. Compared to the extraordinarily warm winter in the prior period, 2007/2008 was nonetheless around 22% colder.

Development of crude oil prices

Until the onset of the financial crisis and its impact on the real economy, primary energy markets had been assuming that global energy requirements would rise significantly. Against the backdrop of limited energy resources, the price of oil rose steadily until the middle of the year to stand at an all-time high on 3 July 2008 of USD 143.6 per barrel. The massive rise in primary energy prices was dampened to some extend in Europe by the strong euro. By the end of September, however, the price of oil had fallen sharply to around USD 100 per barrel. Overall, the average price of a barrel of Brent priced in euro during our 2007/2008 financial year was around 43% higher than in the previous twelve-month period.

_{Source: Brent crude, weekly average, e&t 13.10.08}