(VIENNA) - Runaway oil prices and the strong euro will slam the brakes on growth of the Austrian economy next year, two top think tanks predicted Friday.

"Inflation is dampening growth," said IHS, the Institute for Advanced Studies, in a statement.

IHS raised fractionally its forecast for gross domestic product (GDP) growth this year to 2.2 percent from 2.1 percent previously, but said it was pencilling in growth of only 1.9 percent in 2009, well below an earlier prognosis of 2.2 percent.

"Rising raw materials prices are pushing up inflation and therefore eating in to consumers' purchasing power," IHS said.

"The increased momentum of inflation will lead to a tightening of monetary policy. The strong euro and slower global trade are weighing on exports. And sentiment indicators also point to a slowdown in growth," IHS said.

Fellow institute WIFO agreed.

While growth in the first three months of the current year had come out stronger than expected at 0.8 percent on a quarter-on-quarter and 3.5 percent on a 12-month basis, "the economy has now started to weaken," WIFO said.

"That is due not least to the marked rise in oil prices, which have pushed up inflation. High inflation is, in turn, weighing on the disposable income of households and putting the brakes on consumer spending," it continued.

The economic slowdown in the United States and other industrialised countries was hitting Austrian exports and investment, WIFO added.

WIFO raised its GDP forecast for this year to 2.3 percent from 2.1 percent, but cut its prognosis for next year to only 1.4 percent from 1.7 percent previously.

Last year, the Austrian economy grew by 3.4 percent.

With the usual time-lag, the labour market would also feel the slowdown, with the jobless rate set to rise next year for the first time in three years, IHS predicted.

Using Eurostat's definition, the Austrian jobless rate, which is set to fall to 4.2 percent this year from 4.4 percent in 2007, would rise to 4.3 percent, IHS said.

Inflation, which topped a 15-year high of 3.7 percent in May, would begin to ease in the latter half of this year, but the annual inflation rate would nevertheless average 3.2 percent for the whole of 2008, compared with 2.2 percent in 2007.

The European Central Bank defines price stability as 12-month inflation rates of close to but just below 2.0 percent.

For 2009, IHS was pencilling an average annual inflation rate of 2.3 percent.

The euro-dollar exchange rate was set to average 1.53 dollars in 2008 and 1.45 dollars in 2009 and the price of oil would average 117 dollars per barrel in both years.

The Austrian public deficit was set to amount to 0.6 percent of GDP in 2008 and then only 0.4 percent in 2009, IHS forecast.

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