ORGANISATION FOR ECONOMIC CO-OPERATION ANO DEVELOPMENT ORGANISATION DE COOPERATION ET DE D E V E L 0 P P E M E N T ECONOMIQOES BASIC STATISTICS BELGIUM THE LAND Area (1000 sq.km) 30.5 Main urban areas (31.12.1971) Agricultural area, 15.5.72 inhabitants: (1000 sq.km) 15.2 Brussels 1074726 Forests, 1970 (1000 sq.km) 6.0 Antwerp 672703 Liège 440447 Gand 224728 THE PEOPLE Population (31.12.1971) (thousands) 9659 Net immigration (1971) 24184 Number of inhabitants per sq.km 317 Total labour force (1972) 3879000 Population, net natural increase Agriculture, wage earners (1971) 13000 (1971) Manufacturing, wage earners (1971) 1 140000 Yearly average 20251 Yearly rate per 1000 inhabitants 2.09 PRODUCTION Gross national product (1971) National expenditure (1971) billions of Belgian francs 1419.0 billions of Belgian francs: Gross national product per head Private consumption 852.3 (1971) USS 2940 Public consumption 199.0 Gross fixed investment: Gross fixed asset formation 307.2 Percentage of GNP (1971) 21.7 Net exports 32.0 Per head (1971) USS 636 THE GOVERNMENT Current government expenditure Composition of the House on goods and services (1971) of Representatives: % percentage ofGNP 14.1 Christian-Social Party 30 Current government revenues (1971) Belgian Socialist Party 26 % of GNP 35.5 Freedom and Progress Party 15 Government debt, 31.12.1972 Communist Party 3 billions of Belgian francs 711.6 Others 26 Last election: 1971 Next election: 1975 FOREIGN TRADE Exports: Imports: Main exports in 1972 Main imports in 1972 % oftotal exports (BLEU) % of total imports (BLEU): Base metals 20 Base metals 15 Machinery and equipment 11 Minerals 13 Textiles 9 Machinery and equipment 7 Chemicals 12 Transport material 13 Transport material 11 Textiles and fibers 7 THE CURRENCY Monetary unit: Belgian franc Currency units per US dollar, June 1973: 40.3200 Note An international comparison ofcertain basic statistics is given in an annex table. BASIC STATISTICS LUXEMBOURG THE LAND Area (sq.km) 2586 Major city, inhabitants: Agricultural area, 1971 (sq.km) 1342 Luxembourg (31.12.1971) 78000 Woodland, 1971 (sq.km) 840 THE PEOPLE Population (31.12.1971) 345000 Total labour force (1971) 147400 Number ofinhabitants per sq.km 133 Agriculture 15000 Population, net natural increase Industry 69600 Yearly average (1966-1970) 630 Services 62800 Per 1000 inhabitants (1966-1970) 1.9 Salaried employees Net immigration (average 1966-1970) 1911 and wage-earners 114200 Employers, self-employed persons and domestic help 33200 PRODUCTION Gross national product (1971), Gross domestic product at factor cost billions offrancs 52.2 by origin (1969): % Gross national product per head,USS 3030 Agriculture 4.9 Gross fixed investment Mining and quarrying 1.5 (average 1967-1971): Manufacturing 44.3 Percentage ofGNP 25.9 Construction 7.5 Per head, USS 666 Other 41.8 THE GOVERNMENT Public consumption (1971), Composition ofthe Chamber: V. percentage ofGNP 11.7 Christian Social Party 37.5 Current government revenue Workers Socialist Party 21.4 (1971) percentage ofGNP 26.9 Democratic Party 19.6 Central government debt Communist Party 10.8 (December 31st, 1972) billion Frs 15.6 Social Democrat Party 10.7 Last election: 1969 THE CURRENCY Monetary unit: Luxembourg franc Currency units per US dollar, June 1973: 40.3200 Note An international comparison ofcertain basic statistics is given in an annex table. OECD ECONOMIC SURVEYS Archives - RÉFÉRENCES - DOC PRÊTÉ - RETOUR-BUREAU /,ip BELGIUM - LUXEMBOURG ECONOMIC UNION ORGANISATION FOR ECONOMIC CO-OPERATIONANDDEVELOPMENT The Organisation for Economic Co-operation and Development (OECD) was set up tinder a Convention signed in Paris on 14th December, 1960, 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 Republic ofGermany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, the Netherlands, NewZealand, Norway, Portu¬ gal,Spain, Sweden, Switzerland, Turkey, the UnitedKingdom 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 the BLEU bytheOECDEconomicandDevelopmentReviewCommittee took place on 25th June 1973. © Organisation for Economic Co-operation and Development, 1973. Queries concerning permissions or translation rights sould be addressed to: Director of Information, OECD 2, rue André-Pascal, 75775 PARIS CEDEX 16, France CONTENTS Introduction 7 I Features of the upswing and stance of economic policy 8 The firmer trend of economic activity 8 Gradual tightening of demand management policy 13 n The problem of inflation 20 Acceleration of the wage/price spiral 20 The Impact of international transmission of inflation 24 The role ofdomestic factors 37 III Increase in the current external surplus of the BLEU 44 IV Short-term prospects and economic policy problems 51 V Recent trends, economic policy and short-term prospects in Luxem¬ bourg 57 Annex Main economic policymeasures taken since April 1972, Belgium 65 TABLES Text: 1 Demand and output 9 2 Breakdown of gross fixed asset formation 11 3 Money supply, counterparts and credits to the economy 16 4 Indicators of the impact of general government transactions on demand 17 5 General government account on a national accounts basis 19 6 Prices in Belgium and abroad 20 7 Prices and wages 21 8 Share of foreign trade in GNP 24 9 Import prices 26 10 Export prices and wage payments 31 11 Government expenditure and taxation 38 12 Aggregate tax pressure, inter-country comparisons 1965-1970 40 13 BLEU balance of payments on a transactions basis 49 14 Official forecasts 53 15 Luxembourg. Demand and output 58 16 Luxembourg. Central government transactions 61 OECD Economic Surveys Statistical Annex: A National product and expenditure 72 B Origin of gross domestic product at factor cost 73 C Gross domestic asset formation 74 D Income and expenditure of households and private non-profit insti¬ tutions 76 E Government revenue and expenditure 77 F Industrial production 78 G Employment, wages and labour market 79 H Prices 80 I Money and banking 81 J Area breakdown of foreign trade 82 K Commodity breakdown of foreign trade 83 L BLEU balance of payments 84 M Luxembourg. Output and demand 85 N Luxembourg. Main aggregates 86 DIAGRAMS 1 Indicators of output and demand 10 2 Labour market 12 3 Monetary trends 14 4 Consumer prices 22 5 Dispersion of price increase rates 23 6 Respective shares ofimports and exports in total resources and uses 25 7 Export and import prices, actual and predicted 28 8 Dispersion of wage earnings 30 9 Wage corridor and productivity in manufacturing 32 10 Indicators of demand pressure 33 11 Monetary base and money supply 34 12 Foreign exchange market 36 13 Pure private consumption and tax pressure 39 14 Structure of the balance of payments 46 15 Relative degree of utilisation of resources 48 16 Luxembourg. Total industrial output and metal output 59 INTRODUCTION With a keener stimulus coming from foreign demand and a gradual strengthening of domestic demand, largely attributable to the reflationary measures taken by the authorities, a revival of activity got under way in the early part of 1972 and continued to gather momentum throughout the year. Duringthefirstfewmonthsof1973expansionwaswidespreadanditcontinued at a rapid pace, which resulted in a higher degree ofutilisation ofproduction capacity. The upswing was accompanied, as from the autumn, by a reversal of trends on the labour market, with the result that unemployment declined somewhat. The already substantial surplus on the BLEU current external account recorded over the three previous years widened further and probably amounted to nearly 4 per cent ofGNP, this being one ofthe highest percen¬ tages among Member countries. The situation in regard to costs and prices deteriorated considerably, however. Given the present stance of economic policy, which is only moderately restrictive, the strength of domestic auto¬ nomous tendencies and the expected growth of external demand, the boom conditions should continue throughout the year. In 1973 the real growth rate of GNP might therefore reach 5.5 per cent, compared with the medium- term growth target of4.8 per cent adopted for the Third Plan for the period 1971-1975. Ofall theshort-termproblems nowclaimingtheattentionoftheeconomic policy authorities, the implementation ofa suitable policy to combat inflation seems to be the most important. Belgium, which throughout the 60s exper¬ ienced on the whole a relatively satisfactory situation with regard to costs and prices, now has like most Member countries a very high rate ofinflation, which does not seem likely to decline significantly in the short term. The strength of autonomous trends and inflationary pressures have prompted the authorities to accentuate progressively the restrictive stance of economic policy, while taking care to maintain a high level of employment. Part I ofthis Survey describes the main features of the upswing and the recent stance of economic policy. Part II contains an analysis of the problem of inflation looked at from the medium-term standpoint. Part III deals with the increase in the current surplus ofthe BLEU over recent years. Short-term prospects and main economic policy conclusions are set out in Part IV. Recent trends, policies and prospects in the Luxembourg economy are discussed separately in Part V. OECD Economic Surveys I FEATURES OF THE UPSWING AND STANCE OF ECONOMIC POLICY Thefirmer trend of economic activity Following the slowdown that occurred in 1971, the growth ofindustrial activity quickened noticeably during 1972, spurred on by the brisker impetus from foreign demand and a gradual strengthening ofdomestic demand. The recovery which began in consumer durables industries spread to the inter¬ mediate goods industries, owing in particular to the drive shown by certain export industries (steel, chemicals, oil). Activity in the capital goods sector, which had remained at a relatively low level over the greater part ofthe year, also picked up during the last quarter. Year on year, industrial production increased by about 6.4 per cent in 1972, but its upward movement during thelatterpartoftheyearwasmuchmorepronounced,about9percent. This coincided with a higher rate ofcapacity utilisation1 and a growth of orders. The average duration of activity, guaranteed by outstanding order books, which had remained virtually unchanged throughout the second half of 1972, also increased during the early part of 1973. Some improvement probably occurred too in building and public works during the past year, although because ofinadequate statistics the index of production in this sector shows onlyasmallgrowthcomparedwith 1971. Givenarelativelysustainedgrowth of activity in services but poor results in agriculture, in all the real rate of growth ofGNP accordingto the latest official estimateswas about 5 per cent, probably a slightly higher rate than that of production capacity growth and in the eventwell in excess ofthe forecasts made early in the year2. Private consumption, stimulated by the substantial increase in the real disposable income of households3 and the measures to ease consumer credit introducedinApril 1972,remainedfirmonthewhole. Itisprobable,however, that the exceptionallyrapid growth ofcertain categories ofconsumer durables during the first half of the year was partly due to a long-term process of 1 According to the business surveys published by the Belgian National Bank, this raterosefrom 82.1 percent inJanuary 1972to 83.7 per centin January 1973. 2 In their budget forecast, which was drawn up in February 1972, the authorities envisaged two projections for the year 1972. The first one, based on autonomous trends and the assumption of an unchanged economic policy, showed a real growth of GNP of 3 percent. Thesecond, incorporating theeffects ofthe policymeasures decided on at the beginning ofthe year, showed a rate of 3.8 per cent. It was based in particular on the assumptionofadistinctlysmallerincreaseinexportsofgoodsandservicesthanthatactually recorded in 1972. 3 Thevery steep increase in nominal wages was partly offset by a morerapidrisein prices, a levelling-off of employment and higher taxation. But overall, households' real disposableincomegrewin 1972byabout7 percent, oneofthehighestratesrecordedsince thebeginningofthe1960s. Thistrendwasaccompanied,moreover, byarisein the saving ratio. Table: Rate ofincrease in real disposable income ofhouseholds (per cent) 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 2.3 5.6 3.4 6.2 6.3 2.6 3.3 4.7 7.1 7.3 4.0 7.1 BLEU Table 1 Demand and output 1970 at current From previous year prices (volume) B. Fn. Percentage 1970 1971 1972 billion breakdown Private consumption 802 62.0 8.7 -1.6 7.0 Government consumption 175 13.5 3.2 4.8 6.5 Gross fixed asset formation 290 22.4 9.8 -2.8 1.8 Final domestic demand 1267 97.9 8.2 -1.0 5.7 Stocks1 -13 -1.0 -3.0 3.6 -0.9 Exports: goods and services 616 47.6 11.5 8.1 9.0 Imports: goods and services 576 44.5 8.6 6.2 8.8 External balance1 40 3.1 1.4 1.1 0.4 Gross National Product 1294 100% 6.2 3.7 4.9 GNP implicit price deflator 5.0 5.8 6.8 Industrial production (excluding cons¬ truction) 3.4 2.6 6.4 1 Changes expressed as percentages ofGNP for the preceding period. Source: Belgian statistical submission to the OECD. catching up on purchases delayed as a result of the introduction of VAT in January 1971. Demand for non-durable consumer goods was somewhat erratic during most ofthe year, but grew distinctly firmer in the last quarter. The growth of public consumption, due among other things to wages and salaries increases in favour of employees of the public sector (" accord de programmation sociale "), also proved to be a mainstay ofexpansion. Despite a certain recovery during the year, gross fixed asset formation, which had fallen by 2.8 per cent in 1971, made little headway in 1972. This overall trend conceals divergent component movements, however. Public sector investment, which had already risen steeply the year before, continued toexpandatasustainedrateasaresultoftheincentivesintroducedinFebruary. There was also a recovery in residential construction1, as evidenced by the steep increase in building permits and the number ofhousing starts, together with the growth in the guaranteed average duration of activity in first-stage residential construction. Enterprises' propensity to invest, which had shown a weaker trend throughout 1971 and into the early part of 1972, picked up somewhat. But according to the latest national accounts estimates, year on yearrealprivateproductiveinvestmentremainedvirtually thesameasin 1971. Stockbuilding2 made no positive contribution to the growth of the eco- 1 Thefirmertrendseemslargelyattribuatbletothecumulativeeffect oftheincentives introducedbytheauthoritiesinSeptember1971 andMarch1972. Theseincluded a reduc¬ tion,ininterestrates and an increase in construction premiums, togetherwith easier mort¬ gageterms andaraising oftheceiling onmortgageloans backedbythe State's guarantee. 2 It should be noted that in the national accounts changes in wholesale and retail stocksareincludedinprivateconsumption. Forrecentyears,however,theresearchdepart¬ ment ofthe Ministry for Economic Affairs has made estimates ofchanges in wholesale and retail stocks, together with an assessment of private consumption and theaggregate change in stocks, in accordance with standardized national accounting practice. It is the SNA definitions which are used in the tables incorporated in the text of this survey.