OECD Economic Surveys : Germany 1973.

98 Pages·6.247 MB·English

by  OECD

ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
ORGANISATION OE COOPERATION ET OE OEVELOPPEMENT ECPNJMIdOES
BASIC STATISTICS OF GERMANY (F.R.)
THE LAND
Area, 1971 (thousand km») 249 Majorcities, 1.1.1971: Million
Agriculturalarea, 1971 (thousand km") 135 inhabitants
Forests, 1971 (thousand km') 72
Berlin(West) 2.1
Hamburg 1.8
Munich 1.3
Cologne 0.8
Ussen 0.7
Dusseldorl" 0.7
Frankfurt 0.7
Dortmund 0.6
THE PEOPLE
Population, 1.7.1972(thousand) 61674 Netimmigration, 1971 430000
No.orinhabitantsperkm1 248 Labourforcetotal, 1972 27200000
Netnaturalincreaseinpopulation, Employmentinindustry, 1972 9873000
1971 48000
PRODUCTION
GDP, 1972(billionsofDM) 829.9 OriginofGDP, 1972(percent):
GNPperhead, 1972(USJ) 4160 Agriculture,forestry,fishery 3
Grossfixedinvestment Industry(incl.construction) 53
(average 1970-1972): Services 44
PercentofGNP 26 Homefood productionasapercentage
Perhead(USI) 950 oftotalfoodavailability
(agriculturalyear 1970-1971) 60
THE GOVERNMENT
Publicconsumption, 1972 CompositionofFederal Parliament:
(percentorGNP) 17.8 Christian Democrats 224seats
Generalgovernmentcurrentrevenue, Social Democrats 230
1972(percentofGNP) 39 Free Democrats 42
Publicdebt,1971 (ratiotogeneral Lastelection: 19thNovember 1972
governmentcurrentrevenue) 48 Nextelection: 1976
FOREIGN TRADE
Exports: Imports:
ExportsoFgoodsandservicesaspercent Importsofgoodsandservicesaspercent
ofGNP(average 1970-1972) 23 ofGNP(average 1970-1972) 21
Mainexports, 1972(percentoftotal Main imports, 1972(percentoftotal
merchandiseexports): merchandiseimports):
Productsofagriculture, Productsofagriculture,
forestryandfishing 1 forestryand fishing 13
Basic materials and semi-finished goods 27 Basicmaterialsandsemi-finishedgoods 35
Manufacturedfoodsandtobacco 3 Manufactured foodsandtobacco 9
Otherconsumermanufactures 11 Otherconsumermanufactures 17
Investmentgoods 56 Investmentgoods 23
Otherexports 2 Otherimports 3
Total Ï00 Total TOO
THE CURRENCY
Monetaryunit: DeutscheMark CurrencyunitsperUSdollar,
central rate:
asfrom21.12.1971 3.2225
asfrom 14.2.1973 2.9003
asfrom 11.3.1973 2.8159
Note FiguresincludetheSaarandWestBerlin.
Aninternationalcomparisonofcertainbasicstatisticsisgiveninanannextable.
OECD ECONOMIC SURVEYS
GERMANY
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
The Organisation for Economic Co-operation and
Development (OECD) was set up under a Convention
signed in Paris on 14th December, I960, which provides
that the OECD shall promote policies designed:
to achieve the highest sustainable economic growth
and employment and a rising standard of living in
Member countries, while maintaining financial sta¬
bility, and thus to contribute to the development of
the world economy;
to contribute to sound economic expansion in
Member as well as non-member countries in the
process of economic development;
to contribute to the expansion of world trade on a
multilateral, non-discriminatory basis in accord¬
ance with international obligations.
The Members of OECD are Australia, Austria,
Belgium, Canada, Denmark, Finland. France, the Federal
Republicof Germany, Greece, Iceland,Ireland,Italy, Japan,
Luxembourg, the Netherlands, New Zealand, Norway, Por¬
tugal, Spain, Sweden, Switzerland, Turkey, the United
Kingdom and the United States.
The Socialist Federal Republic of Yugoslavia is
associated in certain work of the OECD, particularly that
of the Economic and Development Review Committee.
The annual review of Germany by the
OECDEconomicand Development ReviewCommittee
took place on 18th April, 1973.
The present Survey has been updated subsequently.
© OrganisationforEconomic Co-operation and Developement,1973.
Queries concerning permissions or translation rights should be
addressed to :
Director ofInformation OECD
2, rue André-Pascal, 75775 PARIS CEDEX 16, France
CONTENTS
Introduction 5
I Current policy issues and short-term prospects 6
II Particular nature of the current upswing 14
m The past policy record 22
(a) Public finances 24
(b) Monetary policy 36
IV Conclusions 53
Annexes
I Fiscal and monetary indicators technical note on methods and
concepts 57
II Counter-cyclical fiscal policy measures~1967-1971 71
m Chronology of main economic policy measures 1972-1973 75
TABLES
Text:
1 Official short-term target projections 7
2 Public sector account 10
3 Recent monetary indicators 11
4 Trends and prospects ofdemand and output 12
5 Balance ofpayments 20
6 Economic growth and cyclical variability in international com¬
parison 22
7 German relative price performance in international comparison 23
8 Public sector account Comparison between projected and actual
developments 30
9 German tax burden in international comparison 35
10 Lags from peaks and troughs in level of interest rates to cyclical
turning points in business investment 46
11 Cyclical changes in maturity composition of external investment
financing 47
12 Special measures against capital inflows during restrictive policy
periods 51
Statistical Annex:
A Gross national product 83
B Distribution ofnational income 84
C Employment and labour market 85
D Industrial production, new orders and deliveries 86
E Wages and prices 87
F Volume of money, monetary capital formation and bank liquidity 88
G Merchandise trade by area 89
H Merchandise trade by commodity groups 90
I The balance ofpayments 91
DIAGRAMS
1 Development ofprices 8
2 Output and new orders in manufacturing 9
3 Wage development 13
4 Indicators ofcyclical instability 15
5 Indicators ofdemand pressure 16
6 Cyclical fluctuation ofmain expenditure components 17
7 Main sources ofcyclical instability 18
8 Prices, costs and incomes 21
9 Cyclical behaviour ofpublic finance 25
10 Budget impact indicators 27
II Civil engineering orders from public sector 28
12 Cyclicalbehaviourofexpenditureandrevenuebylevelsofgovernment 31
13 Cyclical behaviour ofmain budgetitems 33, 34
14 Main features ofthe german financial system 38 to 40
15 Posture ofmonetary policy and interest rates 41
16 Growth ofmonetary aggregates 43
17 Investment expenditures and monetary policy changes 45
18 Monetary aggregates and external surpluses 49
INTRODUCTION *
The economic downswing which followed the exceptionally strong
1969/70 boom was mild and short-lived. It has since the fourth quarter of
last year given way to a new export-led upturn which appears to be stronger
than anticipated in the Government's 1973 target projections. Given the
small margin of slack existing at the beginning of the upswing, an optimum
degree of resource utilisation will be reached at an early stage of the cycle.
This, combined with a less strong competitive position of German industry,
should enable Germany to make a further contribution to the reduction of
international payments disequilibrium and to a better distribution of inter¬
national reserves. Against this generally favourable background, the short
and medium-term price outlook is less comfortable and raises important
policy issues.
Germany shares the experience of deteriorating price performance with
most other Member countries; but relative to the earlier post-war record her
loss of price stability has been particularly pronounced. The Government
has refrained from direct intervention into the price/wage formation process,
not only because of political inopportunity, but also because this approach is
not regarded as tackling the problem at its roots. It is rather seen as post¬
poning the problem, and indeed aggravating it in the future. The burden of
stabilisation policies lies therefore with demand management policies.
Indeed, both fiscal and notably monetary disinflationary measures were
imposed at an early stage of the recovery, but these measures may not be
sufficient to reverse the tendency towards accelerating inflation.
Part I of the present Survey discusses recent economic trends and short-
term prospects on the basis of the present policy stance. Part II examines
in what respects the starting point for the current upswing and the economic
and political environment are different from those of previous recoveries
which have typically seen a high degree of cost and price stability. Part HI
attemptsan assessment oftheshort-run demand impact offiscal and monetary
policies against the background of the relatively steady advance of the
economy up to the mid-1960s and its less stable behaviour thereafter. The
main policy issues and conclusions are summarised in Part IV. A calendar
of main economic events and policy measures, and technical notes and
comments on the measurement of fiscal and monetary demand impacts are
given in Annexes I, II and HI.
* This SurveywaspreparedinApril and doesthereforenottakeaccountofthemost
recent Government measures announced in May (see Annex TU). These measures are
important and should progressively serve to slow down the growth ofdemand and prices.
But the main effects may not be felt before the end ofthis year.
OECDEconomicSurveys
I CURRENT POLICY ISSUES
AND SHORT-TERM PROSPECTS
1972 marked the second consecutive year of relatively moderate growth.
The real GNP increase of 2.9 per cent and the resulting easing of pressures
on resources were consistent with the Government's 1972 target projections
(Table 1). However, two important developments ran counter to expecta¬
tions. First, partly influenced by special factors, the advance in consumer
prices accelerated sharply in the second half of last year (Diagram 1); and at
the turn of the year, soaring import prices, a steeper trend in industrial
producer prices and growing inflationary expectations as suggested by IFO
business surveys gave rise to renewed concern. Second, the moderate recov¬
ery in activity which had been predicted by most observers did not come
through as smoothly as foreseen. Following weaker trends during the
summer months, the last quarter saw a spectacular rise in foreign demand
and domestic investment, tendencies which have been confirmed by more
recent indicators (Diagram 2). Pressures on the labour market and industrial
capacities rose rapidly, and regained their long-term average levels, pointing
to the re-emergence of boom conditions at an early stage of the upswing.
Demand management policies have been speedily adjusted to the change
in business conditions. To prevent a further strengthening of inflationary
pressures the Government's 1973 target projection aims at keeping the
advance in output at close to capacity rate. Growth of public expenditures
is expected tobekeptwithin reasonablebounds bythefreezing oftax revenue,
and other measures envisaged include the issue of a stabilisation bond of up
to DM 4 billion1. To curtail the growth of private demand, the Government
has proposed increases in direct and indirect taxation equivalent to about
i per cent of GNP. A further quasi-automatic rise in revenue equivalent to
almost 1 per cent of GNP will result from increases in social security contri¬
bution rates in line with earlier decisions. Overall, increases in revenues and
public expenditures are expected to imply a restrictive swing in the public
sector's financial balance equivalent to about le per cent of GNP (Table 2).
Since about mid-1972, monetary policy has maintained a restrictive
posture, aiming at strict control of banks' "free liquid reserves". However,
domestic credit and money supply M2 continued to grow rapidly until the
end of last year, while money supply Ml grew at considerably lower rates in
the second half of 1972. The deceleration of monetary growth early this
year was temporarily brought to a halt by heavy inflows during the recent
international monetary crisis (Table 3). Banks' liquidity position has been
severely squeezed in recent months, suggesting a significant deceleration in
the growth of monetary aggregates in the months ahead. However, existing
money stocks originating from excessive monetary expansion over the last
12 to 18 months could cushion the impact of credit policy on non-financial
sectors.
1 SeeAnnexHI.
Table 1 OfficialShort-TermTargetProjections
Percentagechangesagainstpreviousyear
1968 1969 1970 1971 1972 1973
RealGNP projected 4 .0 41 4 -5 3 -4 2 -3 4-5
actual 7 .3 8 .2 5 .8 2 .7 2 .9
GNPdeflator projected 2 .1 21 5 4* 5 51
actual 1 .6 3 .6 7 .1 7 .7 6 .1
Privateconsumptiondeflator projected 2 .5 2 3 3 41 5J- 6
actual 1 .9 2 .5 3 .5 5 .2 5 .8
Foreignbalance(percentofnominalGNP) projected 21 2* 11-2 U-2 H
actual 3 .3 2 .4 1 .6 1 .3 1 .6
Unemployment ratio in per cent of depen¬ nearly just above nearly
dentlabourforce projected 1 .4 1 1 1 1 1
actual 1 .5 0 .8 0 .7 0 .8 1 .1
Compensationofemployees projected 4 .7 8 1 121-131 9*-10J 7 -8 101-111
actual 7 .4 12 .7 17 .7 13 .3 9 .7
Incomefromproperty andentrepreneurship projected 11 .8 1 4 -5 3 -4 6 -7 9 -10
actual 17 .5 6 .6 9 .7 3 .7 7 .1
Source:Jahrawirtsctufuberlcbte.
OECDEconomicSurveys
Diagram 1 Deretopment ofPrices
CONSUMER PRICES
seasonal), adjustedquarterly increases at annual rates
INDUSTRIAL.PRODUCER PRICES -
quarterlychangesoverpreviousyear
PRICES IN MANUFACTURING J
30 (BusinessSurvey) /
20 V S Ns Charriesovernex13months2
^(cid:9)l^j
10
0
Changesoverpreviousmonth
6
IMPORT PRICES-
4 quarterlychangesoverpreviousyear
2
0 L
-2 .
-4 »
I IV I II III IY I II III IV 1 II III IV I II III IV
1969 1970 1971 1972 1973
1 1973 Secretariatestimate.
2 Predictionsattributedtoend ofpredictionspan.
Sources: StatistischesBundesamt,IFO, OECD.
8