ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT ORGANISATION DE COOPERATION ET DE D E V E L 0 P P E M E N T ECONOMIQUES BASIC STATISTICS BELGIUM ' -y- _>*>.» THE LAND Arca (rOÔÔi si*km)' .- - 30.5 Main urban areas (31.12.1972) Agricultural area inhabitants: (1 OOO sq. kni) 1972' 15.8 Brussels 1 069005 Tillage and temporary Antwerp 671872 grassland (I 000 sq. km) Liège 438825 1972 8.4 Gand 223145 THE PEOPLE Population (31.12.1973) (thousands) 9757 Net immigration (1973) 18628 Number ofinhabitants per sq. km 320 Total labour force (1973) 3886000 Population, net natural increase Agriculture, wage earners (1971) 13000 (1973) : Manufacturing, wage earners (1971) 1 140000 Yearly average 11 112 Yearly rate per 1 000 inhabitants 1.14 PRODUCTION Gross domestic product (1972) National expenditure (1972) billions of Belgian francs 1 566.3 billions of Belgian francs: Gross domestic product per head Private consumption 946.8 (1972) US 8 3660 Public consumption 234.4 Gross fixed investment: Gross fixed asset formation 331.0 Percentage of GDP (1972) 21.1 Net exports 37.5 Per head (1972) US S 770 THE GOVERNMENT Current government expenditure Composition of the House % on goods and services (1972) of Representatives: percentage of GDI* 15.0 Christian-Social Party 33 Current government revenue (1972) Belgian Socialist Party 28 % of GDP 35.8 Freedom and Progress Party 15 Government debt, 31.12.1973, Communist Party 2 billions of Belgian francs 764.8 Others 22 Last election: 10.3.1974 Next election: 1978 FOREIGN TRADE Exports: Imports: Main exports in 1973 Main imports in 1973 % oftotal exports (BLEU): % of total imports (BLEU): Base metals 22 Machinery and équipement 15 Machinery and equipment 10 Minerals 12 Textiles and fibers 9 Base metals 9 Transport material 11 Transport material 12 Chemicals 12 Textiles and fibers 7 THE CURRENCY Monetary unit: Belgian franc Currencv units per US dollar: as at 30.4.1974 37.540 actual average rate in 1973 38.942 Note An international comparison ofcertain basic statistics is given in an annex table. BASIC STATISTICS LUX MBO; *tV*e lO THE LAND Area (sq. km) 2586 Major city, inhabitants: Agricultural area, 1972 (sq. km) 1333 Luxembourg (31.12.1971) Woodland, 1972 (sq. km) 840 THE PEOPLE Population (31.12.1972) 348200 Total labour force (1972) 151400 Number ofinhabitants per sq. km 13.5 Agriculture 14500 Population, net natural increase 1972 35 Industry 72600 Net immigration 1972 3243 Services 64300 Salaried employees and wage-earners 1)8900 Employers, self-employed persons and domestic help 32500 PRODUCTION Gross domestic product (1972) Gross domestic product at factor cost % billions offrancs 59.3 by origin (1970): Gross domestic product per head, Agriculture 4.4 US S 3890 Mining and quarrying 1.4 Gross fixed investment, 1972: Manufacturing 45.8 Percentage of GDP 28.6 Construction 7.7 Per head, US S 1090 Other 40.7 THE GOVERNMENT Public consumption (1972), Composition ofthe Chamber: '/. percentage ofGDP 11.7 Christian Social Parly 30.5 Current government revenue Workers Socialist Party 28.8 .(1972) percentage ofGDP 22.9 Democratic Party 23.7 Central government debt Communist Party 8.5 (December 31st, 1973) billion Frs 16.4 Social Democrat Party 8.5 Last election: 26.5.1974 THE CURRENCY Monetary unit: Luxembourg franc Currency units per US dollar, as at 30.4.1794: 37540 actual average rate in 1973: 38942 Note. An international comparison ofcertain basic statistics is given in an annex table. OECD ECONOMIC SURVEYS BELGIUM - LUXEMBOURG ECONOMIC UNION ORGANISATION FOR ECONOMIC CO-OPERATIONANDDEVELOPMENT The Organisation for Economic Co-operation and Development (OECD) was set up under a Convention signed in Paris on 14th December, 1960, which provides that the OECD shall promote policies designed : to achieve the highestsustainable 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 basisin accordance with international obligations. The Members of OECD are Australia, Austria, Bel¬ gium, Canada, Denmark, Finland, France, the Federal Republic of Germany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Nor¬ way, Portugal, 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 andDevelopment Review Committee. * The annual review of the BLEU by the OECD Economic and Development Review Committee took place on 20th June, 1974. The present Survey has been updated subsequently. © Organisation for Economic Co-operation and Development, 1974. Queries concerning permissions or translation rights should be addressed to : Director of Information OECD 2, rue André-Pascal, 75775 PARIS CEDEX 16, France CONTENTS Introduction 7 I Developments in 1973 and early 1974 8 Demand, output and employment 8 Prices, wages and costs 13 Balance of payments 20 II Broad lines of economic policy 25 Demand management policy 26 Monetary policy 26 Budget policy 31 Prices policy 35 III The impact of the energy crisis and short-term prospects 36 Belgium's energy situation 36 Energy policy 38 Short-term impactofthe energy crisis 40 The uncertainty of forecasts 42 IV Economic policy problems and conclusions 45 V Recent trends, economic policy and short-term prospects in Luxembourg 47 Recent trends 47 Economic policy 49 Prices policy 49 Monetary policy 50 Budget policy 51 Energy policy 52 Short-term prospects 52 TABLES Text: 1 Breakdown of gross fixed asset formation 8 2 Components of households' appropriation account 10 3 Demand and output 12 4 Long-term trend in labour force participation rates by region and by sex 15 5 Prices in Belgium and abroad 16 6 Prices and wages 16 OECD Economic Surveys 7 Growth of negotiated wages 19 8 Price-volume breakdown in nominal values of foreign trade 21 9 BLEU balance of payments on a transactions basis 22 10 Monetary reserve against liabilities 28 11 Bank liquidity 29 12 Money supply, counterparts and credits to the economy 29 13 Indicators of the impact of general Government transactions on aggregate demand 33 14 General government account on a national accounts basis 34 15 Trend of energy consumption 36 16 Degree of dependence on energy 37 17 Geographical pattern of oil supplies 37 18 Oil requirements in the main sectors of consumption 38 19 Forecasts for 1974 44 20 Luxembourg : Demand and output 48 21 Luxembourg: Central government transactions 51 Statistical Annex: A Gross domestic product 57 B Origin of gross domestic product at market prices 58 C Gross domestic asset formation 60 D Income and expenditure of households and private non-profit institutions 62 E Government revenue and expenditure 63 F Industrial production 64 G Employment, wages and labour market 65 H Prices 66 I Money and banking 67 J Areabreakdown of foreign trade 68 K Commodity breakdown of foreign trade 69 L BLEU balance of payments 70 M Luxembourg - Demand and output 71 DIAGRAMS 1 Aggregate cyclical indicators 9 2 Indicators of demand 11 3 Indicators of output 13 4 Labour market 14 5 Indicators of geographical disparities on the labour market 15 6 Indicators linked with the trend in food prices 17 7 Indicators linked with the trend in non-food prices 18 8 Structure of the balance of payments 23 9 Effective exchange rates 24 10 Monetary indicators 27 I I Interest rates 30 12 Monetary base and money supply 32 13 Relative prices 39 INTRODUCTION In 1973 the Belgian economy recorded a particularly high growth rate, which was accompanied byincreased strain on the productive system and stronger upward pressure on prices. The growth of aggregate demand was attributable essentially to the sustained expansion of households' consumption, the upswing in house¬ building and the strength of foreign demand. The very largely structural surplus recorded over the last few years on the BLEU current account was again consi¬ derable. In spite ofthehigh level of economic activity,the labour market situation showed very little improvement owing to the persistence of an uneven occupational distribution of labour. The fears that arose late in 1973 of a lasting cutback in oil supplies have now been largely dispelled, but Belgium, like most other Member countries, still has to contend with the consequences of the massive increase in oil prices since last autumn. During the first half of 1974 the effects of the oil crisis have been parti¬ cularly noticeable in two areas: domestic prices, the upward movement of which has accelerated sharply, and the current balance of payments which has dete¬ riorated significantly. In spite of a temporary slowdown in activity at the end of 1973 and the persistence of a depressed climate in the motor vehicle industry, production growth remained relatively sustained, since demand continued to be strong. The potential deflationary impact of the rise in oil prices should materia¬ lise, however, tin the coming months. Thus, the rate of growth of production might weaken in the second half of the year, especially as therestrictive stance of economic policy seems likely to be maintained or even accentuated over the next few months. In 1973 economic policy was largely determined by the concern with fighting inflation. Thus, demand management policy was made significantly more restric¬ tivein thecourse oftheyear, a stance which was maintained during the first months of 1974. Monetary measures were the instruments most used, but the monetary authorities also endeavoured, in both the 1973 and 1974 budgets, to keep stimuli from thepublicsectorto astrictminimum. In view ofthe worryingprice situation, economic policy will probably remain restrictive, at least until the latter part of the year. In its recent statement of intentions the new government has pledged itself to give absolute priority to the fight against inflation, and a programme of monetary and budgetary measures is now being prepared. The situation of the economy in 1973 and the early part of 1974 is analysed in Part I of this survey, which describes the trends in demand, output, prices and the balance of payments during that period. Part II deals with the broad lines of economic policy. The impact of the energy crisis and the short-term outlook for the Belgian economy are discussed in Part III. Economic policy problems and conclusions are the subject of Part IV. The Luxembourg economy achieved extremely good results in 1973. Output, stimulated by strong foreign demand, especially for iron and steel products, increased at a rate almost unprecedented since the end of the war; whereas para¬ doxically, in a country so dependent on world trade, prices have shown the lowest average annual rate of increase in the whole of the OECD area. Recent trends, economic policy and short-term prospects for the Luxembourg economy are dis¬ cussed in Part V of the survey. BLEU 47 With regard to external relations, participation in the European «mini-snake» is for the national authorities a fundamental feature of their economic policy. In this connection, it should also be stressed that the situation of the BLEU is relatively favourable: whereas the current balances of most of the OECD countries will be in deficit in 1974, that of the BLEU will be close to equilibrium. The recent slight appreciation of the Belgian franc in relation to the weighted average of the other currencies clearly reflects the strong structural position of the BLEU current balance. At the time this survey was being drafted, the Belgian experts were revising a quantitative study made in December 1973 in order to determine the options of the Plan for 1976-1980. This revision took chiefly into account the foreseeable impact of the oil crisis. Broadly speaking, the results of the revision indicate that the quantitative growth of the Belgian economy ought not to be fundamentally affected by the oil crisis between now and 1980. The finding of the revision exercise is that «most of the variables show a rate of real growth similar to the one quoted in the reference projection. On the other hand, they show a much higher level of prices. Generally speaking, therefore, it may be expected that the economy will not be affected, in the light of the new international outlook for prices, by a crisis in the true sense of the term but that it will enter into an infla¬ tionary phase that will give increasing cause for concern42». This conclusion suggests that a number of new medium-term policy approaches should be used. For one thing, the measures introduced for purposes of demand management and control of prices and incomes should certainly be developed and refined. For another, the action undertaken in the field of vocational training should, as stated earlier, be intensified. Lastly, energy policy should be redefined with the aim of reducing as far as possible the Belgian economy's direct dependence on outside sources of supply. RECENT TRENDS, ECONOMIC POLICY AND SHORT-TERM PROSPECTS IN LUXEMBOURG Recent'trends The economic upswing which began early in 1972 in Luxembourg grew considerably more pronounced in 1973. Given that the simultaneous accelera¬ tion of growth in the main industrialised countries promoted a boom in world trade, Luxembourg output, which depends heavily on foreign demand, increased at a rate roughly comparable with that recorded in the previous cyclical upswing of 1969. Growth of output from the chemicals industry accelerated significantly throughout the year, the advance on 1972 (+ 14.9 per cent) even exceeding the albeit high rate of growth recorded in the iron and steel industry (10.9 per cent). Overall, the growth of Luxembourg industrial output was 11.9 per cent in 1973 compared with 4.2 per cent in 1972. Furthermore, the strain on productive capacity in the EEC countries resulted in extremely large increases in steel prices. Consequently the growth of GNP was of the order of 20 per cent in money terms and 7.5 per cent in real terms, this being one of the highest rates achieved since the end of the Second World War. The steep rise in exports (9.7 per cent in real terms) was admittedly the deci¬ sive growth factor, but internal demand was strong too, although the various 42 Options of the 1976-1980 Plan: Section I, «The reference projection» - Comple¬ mentary study: «Impact of the oil crisis» (page 6). 48 OECD Economic Surveys Table20 Luxembourg:Demand and output 1972 Frompreviousyear Millions (volume) offrancs 1972 1973 1974» Privateconsumption 33410 5.0 6.0 8.0 Governmentconsumption 6932 2.7 2.0 2.0 Grossfixed asset formation 16958 5.0 4.0 -4.0 Final domesticdemand 57300 3.3 4.6 3.1 Stocks1 200 -0.1 0.6 Totaldomesticdemand 57500 3.2 4.6 3.7 Externalbalance1 635 0.9 3.0 Exportsofgoodsandservices 49850 7.6 9.7 5.0 Importsofgoodsandservices 49215 6.8 6.3 5.1 GNPat marketprices 58 135 4.1 7.5 3.7 1 ChangesexpressedaspercentagesofGNPfortheprecedingperiod. 2 Officialforecasts. Source:STATEC. components showed divergent trends. Households' demand, stimulated by a substantial growth of disposable income in real terms, was very buoyant, not only in respect of private consumption but also with regard to housebuilding. Produc¬ tive investmentby enterprises, on the otherhand, showed aflattrend overall or may even have fallen slightly in real terms from the high level recorded in 1972. Spending by general government does not seem to have had a stimulating effect on production except in the case of public works, where a large increase in expen¬ diture on road infrastructure was recorded. As inprevious years, the growth in the labour force was essentially attributable to arrivals of foreign workers43, but since in 1973 the net inflow was smaller than in 1972 (3 000 as compared with 3 900 persons), the increase was smaller than in the three preceding years (2 per cent as against 2.5 per cent). Owing to the strained condition of the labour market44, the overall growth of real per capita wages was 6 per cent compared with 4 per cent in 197245. The real increase in the negotiated minimum wage (10.4 per cent) fixed by legislation enacted on 1st March, 1973, most certainly had a significant effect in all the sectors where wage agreements had been signed in 1973. The application of the 1972 collective agreement in the iron and steel industry afforded an increase of only about 4.5 per cent in real terms, but all the othersectors of the economy, including services, made substantial re-adjustments. The growth of the total wage bill was rapid therefore, and the indexation ofthebrackets in the personal income tax scale to the consumer priceindex resulted in a sustained growth in households' disposableincome in 1973. Although Luxembourg did not escape the general increase in inflationary pressure in the OECD area in 1973, the rise in prices was smaller there than in 43 In 1973, 62 per cent of wage-earners in the craft trades sector, where there is a severe shortage of skilled labour, were foreign. In the banking sector, where some 500 new jobs were created, the proportion of foreign employees rose from 25.8 per cent in 1972 to 27.6 per cent in 1973 (an increase of 17.3 per cent in foreign staff as against one of 6.9 per cent in staff of Luxembourg nationality). 44 In 1973 the number of unfilled vacancies fluctuated between 405 and 868 and that of unsatisfied applications between 24 and 73. Placement services had only one difficulty to contend with: finding the skilled workers abroad needed by the Luxembourg economy. 45 In Luxembourg, as in Belgium, wages are indexed. The collective agreements concluded between management and labour stipulate, generally for a two-year period, the rates of increase in real wages that will be applied each year.