* Central bank sees -3.5 pct GDP decline in 2009
* Sees return to growth in 2010
* Institute revises down Q3 estimate
(Adds WIFO detailed Q3 estimate)
By Boris Groendahl
VIENNA, Dec 10 (Reuters) - Austria's economic recovery will be subdued in 2010 and 2011 and based on temporary factors, the country's central bank said on Thursday, in an outlook that was an improvement on a previous view but remained restrained.
The central bank now expects the country's gross domestic product to retreat by 3.5 percent this year, rather than by 4.2 percent as it forecast in June, and to return to growth next year rather than contract once more. [ID:nL41035768]
Central bank Governor Ewald Nowotny, a member of the European Central Bank's (ECB) rate-setting Governing Council, said in a statement that the aftermath of the global financial crisis would still weigh on growth.
"The revisions are partly due to temporary factors," Nowotny said in a statement. "Mid-term growth prospects are still expected to remain subdued because of the financial crisis."
The central bank had already indicated earlier that it would revise its forecasts upwards. [ID:nVIE003434] [ID:nVIE003446]
The main factors for the GDP decline are exports and investments in equipment, which had both been drivers of Austria's above average growth in 2006-2007, but are now both expected to drop by 13 percent in 2009.
Austria exited recession with 0.5 percent growth in the third quarter, research institute WIFO said on Thursday, but revised down its previous figure after overestimating the improvement in industrial output and the construction sector [ID:nVIE003473].
Austria's economic fortunes are closely linked to those of Germany, which takes a third of its exports, and to the neighbouring emerging countries of Europe, which now buy an increasing share of its products and services.
Unemployment has not risen as quickly in Austria as in other European countries, partly because of temporary factors such as state subsidies for short working hours that allow companies to keep workers on their payroll in times of less work.
But the unemployment rate, one of the lowest in Europe, will continue to rise into 2011, when it will reach 5.4 percent, the central bank said.
Inflation will be only 0.5 percent in 2009 and remain clearly below the ECB's 2 percent target rate in 2010 and 2011.
Higher expenses due to stimulus measures and automatic stabilisers as well as lower tax revenues because of the weak economy will let Austria's budget deficit rise to 4.2 percent this year and 5.6 percent next year, the bank said. (Additional reporting by Sylvia Westall; Editing by Ron Askew)