OECD Economic Surveys : Luxembourg 1977.

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by  OECD

OECD
ECONOMIC SURVEYS
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BELGIUM
LUXEMBOURG
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JUNE 1977
BASIC STATISTICS BELGIUM
THE LAND
Area (1 000 sq. km) 30.5 Main urban areas (31-12-1974)
Agricultural area inhabitants:
(1 000 sq. km) 1974 15.5 Brussels 1 054970
Tillage and temporary grassland Antwerp 665980
(1 000 sq. km) 1974 8.2 Liege 435822
Ghent 220259
THE PEOPLE
Population (31-12-1975) (thousands) 9813 Net migration (1975) 24904
Number of inhabitants per sq. km 322 Total labour force (1975) 4003000
Population, net natural increase Civilian manpower 3748000
(1975): Agriculture 136000
Yearly average Manufacturingandconstruc¬
Yearly rate per 1 000 inhabitants tion 1 493000
Other 2 119000
PRODUCTION
Gross domestic product (1976) National expenditure (1976) bil¬
billions of Belgian francs 2544.4 lions of Belgian francs:
Gross domestic product per head Private consumption 1 574.5
(1975) US$ 6340 Public consumption ' 454.8
Gross fixed investment: Gross fixed asset formation 524.6
Percentage of GDP (1976) 20.6 Net exports 0.7
Per head (1975) US$ 1392
THE GOVERNMENT
Current government expenditure on Composition of the House of %
goods and services (1976) percen¬ Representatives:
tage of GOP 17.9 Christian-Social Party 38
Current government revenue (1976) Belgian Socialist Party 29
% of GDP 41.8 Freedom and Progress Party 16
Government debt, 31-12-1976, bil¬ Communist Party 1
lions of Belgian francs 1 058.7 Others 16
Last election: 17-4-1977
Next election: 1981
FOREIGN TRADE
Exports: Imports:
Main exports in 1976 Main imports en 1976
% of total exports (BLEU): % or total imports (BLEU):
Base metals 16 Machinery and apparatus 13
Chemicals 12 Chemicals 9
Machinery and apparatus 12 Base metals 7
Textiles and fibres 7 Transport equipment 12
Transport equipment 13 Textiles and fibres 5
THE CURRENCY
Monetary unit: Belgian franc Currency units per US dollar,
average of daily figures:
Year 1976 38.61
April 1977 36.36
Note An international comparison of certain basic statistics is given in an annex tabic.
BASIC STATISTICS LUXEMBOURG
THE LAND
Area (sq. km) 2586 Major city, inhabitants:
Agricultural area, 1974 (sq. km) 1 319 Luxembourg (31-12-1974) 78300
Woodland, 1974 (sq. km) 820
THE PEOPLE
Population (31-12-1975) 358400 Total labour force (1975) 149500
Numberof inhabitantsper sq.km 139 Agriculture 9300
Population,netnaturalincreaseper Industry 70700
1 000 inhabitants in 1975 1082 Services 69500
Net migration 1975 1 388 Salaried employees
and wage-earners 127300
Employers, self-employed persons
and domestic help 22200
PRODUCTION
Gross domestic product (1976) bil Gross domestic product by origin, %
lions of francs 87.5 at market prices (1975):
Gross domestic product per head, Agriculture 3.3
US$ (1975) 6194 Energy 2.2
Gross fixed investment: Manufacturing 35.3
Percentage of GDP (1976) 27.8 Construction 11.4
Per head, US$ (1975) 1 782 Other 47.8
THE GOVERNMENT
Public consumption (1976), percen¬ Composition of the Chamber: %
tage of GDP 15.5 Christian Social Party 30.5
Current government revenue (gene¬ Workers Socialist Party 28.8
ral government)(1975)percentage Democratic Party 23.7
of GDP 30.6 Communist Party 8.5
Central government debt Social Democrat Party 8.5
(December 31st, 1976) billionFrs 18.9 Last election: 26-5-1974
THE CURRENCY
Monetaryunit: Luxembourgfranc Currency units per US dollar,
average of daily figures:
Year 1976 38.61
April 1977 36.36
Note An international comparison of certain basic statistics is given in an annex table.
OECD ECONOMIC SURVEYS
BELGIUM-
LUXEMBOURG
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
The Organisation for Economic Co-operation and Devel¬
opment (OECD) wassetupunderaConventionsignedin Parison
14th December, i960, which provides that the OECD shall pro¬
mote policies designed:
to achieve the highest sustainable economic growth and
employment and a rising standard of living in Member
countries, while maintaining financial stability, and thus
to contributeto thedevelopmentoftheworld economy;
to contribute to sound economic expansion in Member as
well as non-member countries in the process ofeconomic
development;
to contribute to the expansion ofworld trade on a multi¬
lateral, non-discriminatory basis in accordance with inter¬
national obligations.
TheMembersofOECDarcAustralia,Austria,Belgium,Cana¬
da, Denmark, Finland, France, theFederal RepublicofGermany,
Greece, Iceland, Ireland, Italy, Japan, Luxembourg, the Nether¬
lands, New Zealand, Norway, Portugal, Spain, Sweden, Switzer¬
land, Turkey, the United Kingdom and the United States.
The Socialist Federal Republic ofYugoslavia is associated in
certainwork ofthe OECD, particularly that ofthe Economic and
DevelopmentReview Committee.
The annual review of Belgium and Luxembourg
by the OECD Economic and Development Review Committee
took place on 13th May, 1977.
The present Survey has been updated subsequently.
<© OECD, 1977.
Queries concerning permissions or translation rights should be
addressed to:
Director ofInformation, OECD
2, rueAndré-Pascal, 75775 PARIS CEDEX 16, France.
TABLE OF CONTENTS
BELGIAN ECONOMY
Introduction
I Recent trends in demand and activity 8
1 Domestic demand 8
2 Output and employment 12
3 Prices and incomes 16
II Balance of payments 20
III Economic policy 24
Fiscal policy 24
Monetary policy 27
IV Forecasts and economic policy conclusions 32
1 Short-term forecasts 32
2 Economic policy conclusions 35
LUXEMBOURG ECONOMY
Recent trends 38
Fiscal policy 40
Monetary policy 41
Short-term prospects 41
Annex I The new method of calculating imports and exports in the
framework of the balance of payments for BLEU 43
Annex II Main Belgian economic policy measures since June 1976 45
Statistical annex 50
TABLES
Text:
Belgium
1 Demand and output 8
2 Prices and wages 18
3 Components of households' appropriation account 19
6 OECD Economic Surveys
4 BLEU balance of payments
a) Current balance on a transactions basis 23
b) Balance of payments on a settlements basis 23
5 General government account on a national accounts basis 26
6 Indicators of the impact of general government transactions on
aggregate demand 27
7 Money supply and counterparts 30
8 Bank liquidity 30 and 31
9 Forecast for 1977 33
Luxembourg
10 Demand and output 42
Statistical annex:
Belgium
A Gross domestic product 50
B Origin of gross domestic product at market prices 51
C Gross domestic fixed asset formation 52 and 53
D Income and expenditure of households and private non-profit
institutions 54
E Government revenue and expenditure 55
F Industrial production 56
G Employment, labour market and wages 57
H Area breakdown of foreign trade 58
I Commodity breakdown of foreign trade 59
Luxembourg
J Demand and output 60
DIAGRAMS
1 Composite indicator and indicators of demand 11
2 Industrial production 13
3 Indicators of supply 14
4 Labour market 15
5 Price trends 17
6 Effective rate of exchange of the Belgian franc and other currencies 22
7 Interest rates 28
8 Monetary indicators 29
38 OECD Economic Surveys
regard to productive investment. The plan provided for a large-scale redistri¬
bution of resources towards private productive investment and exports and away
from public spending and consumption, this being consistent with the medium-
term strategy adopted by OECD Ministers in June 1976. In the event, an
appreciably different trend seems to have developed and the differences between
forecasts and outturns are considerable for the two years 1976-1977 with regard
to GNP taken as a whole, but even more so as regards the components of demand.
For instance, in the case of private investment, given the very steep fall in 1976
(12.6 per cent in volume terms) and the likelihood of only a small upturn in 1977,
growth rates of the order of 20 per cent a year would have to be achieved over
the rest of the period in order to meet the Plan's targets. Where private consump¬
tion is concerned, on the other hand, the rates of increase in 1976 and 1977
have been of the same order as the average rate envisaged for the period. Finally,
public expenditure seems to have risen at a slightly higher rate than aimed.
On the employment side, the results are considerably at variance with the Plan's
targets. However, the upward movement of consumer prices has slowed consi¬
derably from 1975, though it is still in excess of the medium-term target.
The outturns as far as the rate and pattern of expansion are concerned all
obviously reflect the weak trend in world trade. Moreover, short-term economic
policy has, appropriately, been cautious in the interest of reducing inflation. The
measures recently adopted hardly entailed much net stimulus to activity in the
short term. Inasmuch as prices now seem to be on the right path and the
balance of payments situation constitutes much less of a constraint in Belgium
than in most other OECD countries, it might be appropriate, both from the
domestic and from the international standpoint, after the complete and quick
application of the Egmont Plan, to consider a more expansionary policy. But
this would have to be conceived in a general context of structural reforms and
medium-term policy, particularly in the area of public finance (including Social
Security). Provision should also be made for some reallocation within industry in
which the public sector might play a more active part.
THE LUXEMBOURG ECONOMY
Recent trends
In 1976 the Luxembourg economy's performance was largely affected by
world trade conditions in general and more specifically by the state of the steel
market. As a result of renewed stockholding and the upturn in demand from
the motor vehicle sector, world demand for steel had picked up at the end of
1975, and this had acted as a stimulus to output in Luxembourg4". Thus, in the
49 Crude steel output in tonnes moved as follows (percentage change from previous
period):
1973 1974 1975 1976
1st quarter -8.2 5.4 -18.5 5.8
2nd quarter -1.8 1.3 -22.3 3.8
3rd quarter 3.6 3.3 -22.6 -9.1
4th quarter 0.6 -4.2 +14.7 -3.9
Year 8.6 8.8 -28.3 -1.3
Belgium-Luxembourg 39
fourth quarter of 1975, output of crude steel was almost 15 per cent higher
than in the third quarter. However, despite this recovery at the end of the year,
annual output in tonnes was down 28.3 per cent from 1974. In 1976, the revival
very quickly lost momentum and by the third quarter, output of crude steel
was again on the decline. Output in the iron and steel industry by volume
increased slightly in 1976 (up 3.2 per cent). Given the industry's relative weight
in total industrial output (58.5 per cent in 1974), the latter only showed a very
moderate growth in 1976 (6.3 per cent), which means that it is still at a very
low level owing to the sharp decline recorded in 1975 (- 21.9 per cent).
Agricultural output was down by about 5.5 per cent because of the drought,
with the result that farmers' incomes suffered an appreciable decline. In services,
transport and the distributive trades the situation varied . With industrial produc¬
tion making little headway and steel industry output down, activity continued to
be depressed in the transport sector. In services, there was a brisk advance in
banking and tourism. Overall, GDP showed a volume growth of 3 per cent
in 1976, compared with a decrease of 7.7 per cent in 1975. Total employment,
which had still shown a slight increase in 1975 (+0.2 per cent), fell back in 1976
( 1.5 per cent). Apparently as the result of a large outflow of workers from
Luxembourg, the labour force is estimated to have decreased by 1.4 per cent
during the same period, thereby making it possible to keep the number of wholly
unemployed extremely low After a sharp decline in 1976. short-time working
increased again in the early months of 1977, notably when special public service
projects to provide work for the unemployed were discontinued.
Private consumption accelerated slightly in 1976 (+3 per cent by volume)
compared with 1975 (+2 per cent), despite an apparently less favourable trend
in household incomes. Thus, whereas in 1975 real per capita wages rose by
1.6 per cent, in 1976 the increase in short-time working and the discontinuation
of a certain number of premiums resulted in an appreciably slower growth of real
per capita wages (about 0.3 per cent). Private consumption was therefore
primarily stimulated by a very marked easing of consumer credit policy01 which
caused an increase in outstandings equivalent to 1 per cent of private consumption.
Furthermore, the fall in residential investment in 1976 probably entailed a shift
in expenditure towards consumption. Durables (electrical household appliances,
audiovisual goods and automobiles) had most of the benefit of the rise in consump¬
tion; purchases of food products and textile goods were flat.
In 1976, for the second year in succession, there was a decline in gross
fixed capital formation in real terms. This overall decrease (3.5 per cent by
volume) was, however, the combined result of different trends by type of invest¬
ment. Housing investment, which had fallen by 11.1 per cent in 1975 as a
result of the restrictive policy introduced in 1974, declined sharply again in 1976
( 13.5 per cent). More broadly, total investment in construction declined by
approximately 13 per cent in 1976 since construction of industrial or office
buildings was also depressed. The decline in enterprises' investment in plant and
equipment in 1976 was much more moderate than a year before ( 4 per cent
by volume as against 15 per cent in 1975). This was because of the continuing
downtrend in capital investment in almost all sectors of industry, except iron
and steel where the programmes for rationalising and modernising production
50 The number of wholly unemployed workers drawing assistance moved as follows:
1974: 5 1975: 37 1976: 124
December 1975: 114 December 1976: 241
51 Consumer credit outstandings went up by L.Frs. 481 million between end-1975
and end-1976, representing a year-on-year increase of L.Frs. 350 million, or 0.7 per cent
of households' consumption.
40 OECD Economic Surveys
are progressing extremely rapidly52. Public investment was again the dynamic
component of demand in 1976 and showed a volume growth of 10 per cent,
though this was less rapid than the previous year's growth (18.7 per cent) which
had been achieved mainly through a steep increase in local investment.
Foreign demand provided a considerable stimulus to the Luxembourg
economy at the end of 1975 and during the first quarter of 1976; however, this
stimulus very soon wore off, especially in the iron and steel industry. In
contrast, exports of chemicals and related products continued fairly buoyant
throughout the year. Overall, on a national accounts basis, Luxembourg's exports
of goods and services showed a volume growth of 3.2 per cent in 1976 as against
a decline of 12.4 per cent in 1975. Imports advanced only moderately in 1976
(+0.5 per cent on a national accounts basis), since the renewal of stockbuilding
activity and the pick-up in enterprises' demand for raw materials were easily
offset by the fall in imports of capital goods. As in 1975, the terms of trade53
deteriorated substantially in 1976.
In the course of 1976 there was an appreciable deceleration in the upward
movement of consumer prices54 and again in the early part of 1977. This was
due essentially to a more moderate trend in prices of imported products, which
rose by 7.3 per cent in 1976 compared with 10.4 per cent in 1975, whereas
prices of home-produced goods went on rising briskly (11.8 per cent in 1976 as
against 11.1 per cent in 1975). It was in the food and drink sector that prices
showed the steepest rise in 1976; on the other hand, there was a very considerable
easing in the housing sector (rents, charges payable by tenants). With export
prices virtually flat as a result of general world trade conditions in 1976, prices
as measured by the GDP deflator were up only 4 per cent from 1975.
Fiscal policy
The final budget for 1976, which provided for a deficit of L.Frs. 0.5 billion
(including loan issues of L.Frs. 1 billion), wound up with a surplus of L.Frs.
0.9 billion according to the provisional accounts for the fiscal year. This was
because revenue increased by L.Frs. 2 billion more than originally budgeted,
chiefly as the result of a higher yield from corporation tax, particularly in the
banking sector. The expenditure forecasts were exceeded by about L.Frs. 1 billion,
notably because of the effects of the sliding scale on civil service pay and also
owing to a steeper than expected increase in expenditure on aid to the economy
as a result of the latter's slow growth (special public service projects to provide
52 Investment expenditure by Luxembourg's iron and steel industry in recent years
has moved as follows (L.Frs. billion):
1974: 2292.2 1975: 2 376 1976*: 2515.9 1977**: 5031.0
1976* Provisional data
1977** Forecasts
53 Import and export prices for goods and services in 1975 and 1976 moved as follows:
1975 1976
Import prices +5.2 +7.1
Export prices +0.9
54 Consumer prices have moved as follows:
Year-on-ycar Change during
1975 10.7 10.9
1976 9.8 8.4
1976 I* 10.7 9.1
1976 II* 7.3 7.7
* Annualised