GERMANY I . 2 . B . 3. GERMANY BASIC STATISTICS THE LAND Area,1962(thousand km") (cid:9) 248 Majorcities, June1962 Agriculturalarea(.thousandkm-) (cid:9) 142 inhabitants Forests(thousand km1) (cid:9) 71 Berlin(West) . . . 2.2 Hamburg .... 1.8 Munich (cid:9) 1.1 Cologne (cid:9) 0.8 Essen (cid:9) 0.7 Dusseldorf .... 0.7 Frankfort .... 0.7 THE PEOPLE Population1962 (cid:9) 54,758,000 Net immigration (annual average 1960- No.ofinhabitantsperkm:(cid:9) 221 1962) (cid:9) 360.000 Net natural increase in population Labourforce,total1962 (cid:9) 26,045,000 (annualaverage1960-1962)(cid:9) 375,000 Labourforceinindustry,1962 .... 12.575,000 per1,000inhabitants (cid:9) 70 PRODUCTION G.N.P.1962(bilionofDM) (cid:9) 355,1 OriginofG.D.P.,1962(percent): G.N.P.perhead1962(U.S. .*) (cid:9) 1.579 Agriculture,forestry,fishery (cid:9) , 6 Gross fixed investment (average 1960- Industry(incl.construction) (cid:9) 56 1962): Services (cid:9) 38 percentofG.N.P(cid:9) 25 Home food production as a percentage of perhead(U.S. .¥) (cid:9) 358 total food availability (average 1961-1962). . 65 THE GOVERNMENT Publicconsumption1962(percentofG.N.P.)(1) 15 Composition of Federal Parliament 1964: General governemnt current revenue 1962 (per ChristianDemocrats (cid:9) 2-42 seats cent of G.N.P.)(cid:9) 38 Social Democrats (cid:9) 190 Public debt, 1962 (ratio to general government FreeDemocrats(cid:9) 67 revenue)(cid:9) 50 Lastelection:17thSeptember1961 Nextelection:1965. LIVING STANDARDS Caloriesperhead,perday1961-1962(1) . . 2.958 No.ofradiosetsend1962(per1,000inhabitants) 287 Average hourly earnings of male industrial No.oftelevisionsetsend1962(per1,000inhabi¬ workers,August1963(DM) (cid:9) 3.82 tants) (cid:9) '(cid:9) 124 No. of passenger cars in use, end 1963 (per Public current expenditure on education per 1,000inhabitants) (cid:9) 128 head,1962(U.S. .«) (cid:9) 31 No. of telephones end 1961 (per 1,000 inha¬ bitants) (1) (cid:9) 115 FOREIGN TRADE Exports: Imports: Exports of goods and services as per cent of Imports of goods and services as per cent of G.N.P.(average1960-1962)(cid:9) 20 G.N.P. (average1960-1962) (cid:9) 18 Mainexports,1962(percentoftotalmerchandise Main imports, 1962 (per cent oftotal merchan¬ exports): diseimports): Agricultural products (cid:9) 2 Agriculturalproducts (cid:9) 28 Rawmaterials (cid:9) 5 Rawmaterials (cid:9) 18 Semi-manufactured goods (cid:9) 9 Semi-manufactured goods (cid:9) 16 Finished manufactures (cid:9) 84 Finished manufactures (cid:9) . 38 End products (cid:9) 65 End products (cid:9) 24 Other (cid:9) 19 Other (cid:9) 14 THE CURRENCY Monetary unit: Deutsche Mark. CurrencyunitsperU.S.dollar(cid:9) -4,00 1. Including West Berlin. Note- Figures include the Saar, but exclude West Berlin, unless otherwise stated. ECONOMIC SURVEYS BY THE OECD GERMANY ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT The Organisationfor Economic Co-operation andDevelopment was set up under a Convention signedin Paris on \4th December 1960 by the Member countries ofthe Organisation for European Economic Co-operation and by Canada and the United States. This Conventionprovides that the O.E.C.D. shallpromotepolicies 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 contribute to the development of the world economy; to contribute to soundeconomic expansion in Member as well as non-member countriesintheprocessofeconomicdevelopment; to contribute to theexpansion ofworldtradeona multilateral, non-discrimina¬ tory basis in accordance with international obligations. ThelegalpersonalitypossessedbytheOrganisationforEuropeanEconomicCo-oper¬ ation continues in the O.E.C.D., which came into being on 30th September 1961. The Members of O.E.C.D. are: Austria, Belgium, Canada, Denmark, France, the Federal Republic of Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. This document was approved by the Economic and Development Review Committee in January 1964 CONTENTS Introduction (cid:9) 5 I. Demand and Supply(cid:9) 5 Demand (cid:9) 5 Supply (cid:9) 8 The outlook(cid:9) 13 II. Prices and Costs(cid:9) 13 III. The Balanceof Payments(cid:9) 19 IV. The Money and Capital Market(cid:9) 22 Recent Developments (cid:9) 23 The problem oflong-term capital imports (cid:9) 25 Conclusions(cid:9) 30 * Statistical Annex(cid:9) 33 LU CD < û. < Où GERMANY INTRODUCTION 1. The economic situation in Germany changed in two impor¬ tant respects in 1963. First, progress was made towards the stabi¬ lisation of costs and prices; this was obtained without resort to a generally restrictive economicpolicy but was aided by some further weakening ofdomestic demand. Second, the balance ofpayments deficits of the two preceding years were replaced by a surplus. Part I of this report reviews demand and supply conditions in 1963 and traces the shifts which have taken place in the structure of demand over the last two years. The discussion of price and cost developments in Part II aims at throwing further light on the demand-supply balance during that period. Recent changes in, and the outlook for the balance of payments are dealt with in Part III. After briefly reviewing monetary and capital market developments in 1963, Part IV turns to the question of long-term capital inflows from abroad, which assumed considerable pro¬ portions in that year. I. DEMAND AND SUPPLY 2. The tendency for economic growth to slow down persisted in 1963. The rate of increase of real gross national product, fell from 5.4percentin 1961 to4.4percentin 1962and some 3 percent in 1963. Factors on the supply side importantly contributed to this deceleration but the less even and uniform growth of demand alsoplayedanimportantrôle. Theresultsfor 1963were,moreover, aflected by the unfavourable weather conditions early in the year. Demand 3. In 1961 and 1962, the expansionary forces emanating from business fixed investment and exports had been progressively weakening, leaving private consumption, dwelling construction and public expenditure to provide the main stimuli to the economy. In 1963, however, exports re-emerged as a main expansionary force offsetting in part the slower growth of consumer demand and the flagging propensity to invest. Public expenditure continued to lend strong support to economic activity although it was rising somewhat less vigorously than in 1962. Table 1. EXPENDITURE ON GROSS NATIONAL PRODUCT Percentage change in volumefrompreviousyear. 1960 1961 1962 1963 Private consumption (cid:9) 7.0 6.8 5.7 2.5 Public consumption (cid:9) 8.0 8.8 11.1 8.0 Gross fixed asset formation....... 11.5 9.4 5.4 1.7 Machinery and equipment (cid:9) 17.5 11.5 5.8 1.5 Building and construction (cid:9) 5.0 6.8 5.0 2.0 Stock building (cid:9) 89.2 32.8 9.1 10.0 Exports of goods and services.... 13.3 3.3 4.2 6.1 Less: Imports ofgoodsand services 17.7 7.7 11.4 6.3 Gross national product(cid:9) 8.8 5.4 4.4 3.0 Source: WirtschaftundStatistikand Secretariatestimates. Note. From 1961 onwardsfiguresrelatetotheareaoftheFederalRepublicincludingWestBerlin. 4. The drop of the rate of growth of private consumption from 5.7 per cent in 1962 to probably no more than 3 per cent in 1963 must first and foremost be attributed to the slower rise of wage and salary incomes. The wage and salary bill probably went up by 7 per cent in 1963, as against an increase ofmore than 10 per cent in the previous year. Furthermore, the savings ratio of households rose rather steeply. 5. The growth of investment activity came to a virtual standstill in the first halfof 1963. Were it not for the bad weather early in the year, building and construction activity would pro¬ bably have expanded rapidly since the carry-over of building works was large. There was little, if any, further increase of new demand for building and construction, however. Building autho¬ risations granted in the first, as well as the second, quarter were perceptibly lower than in 1962 in all main categories of building. In some categories, the change of demand was in part induced by official policies designed to ease pressure on building costs; public housing subsidies were granted on a less generous scale, a law was enacted last year prohibiting the issue ofnew licences for commer¬ cial and office building, steps were taken to reduce tax advantages on certain types of building projects. The shrinking demand for industrial building, in contrast, cannot be attributed to any parti¬ cular policy measures. Business investment in machinery and equipment also appears to have been lower than a year earlier in the first half of 1963. The decline did not persist in the summer and data on home market orders in the machinery and equipment industry suggest a reversal of the trend in the autumn. 6. The reasons for the steady slowing down of the growth of business investment demand over the last three years are well known and need only be briefly recapitulated here. The rise of investment could hardly be expected to continue at the excessive rate attained during the boom of 1959-1960 when the investment ratio was pushed up from 23.7 per cent of G.N.P. in 1958 to 26.8 per cent in 1960. The revaluation of the Mark in March 1961 and the building of the Berlin Wall in August contributed to the transition to a more moderate phase of investment activity. The revaluation, combined with the strong pressure of wage costs, weakened the competitive strength of German industry in foreign and domestic markets and affected expectations of return on new investment. Furthermore, the cessation of the inflow of popu¬ lation from the Soviet-occupied zone of Germany had adverse effects on the propensity to invest, since the period ofample labour supplies could not be expected to continue and the scope for expansion of consumer goods markets had narrowed. Finally, the squeeze on profit margins may have created problems of in¬ vestment finance, at least in individual cases. As a result ofthese factors, new demand for business fixed investment rose little already in 1962. Actual expenditure by enterprises continued to grow but this may only have reflected deliveries on orders placed during the previous boom. The backlog of deliveries had been largely worked off by 1963. 7. The structure and the nature of investment have changed importantly over the last few years. As a result, and with the short average age of the capital stock and the still very high in¬ vestment ratio, substantial additions (6 to 7 per cent a year in industry) are being made to productive capacity with constant gross investment. In spite of the recent recovery of foreign demand entrepreneurs have not, under these conditions, judged overall demand prospects good enough to raise their investment. 8. Expenditure by the Federal authorities and the Lander rose somewhat less steeply in the first half of 1963 than in the corres¬ ponding period of 1962. Since the growth of current receipts slowed down as well the usual first-half-year cash surplus con¬ tracted. But an important element in the higher expenditure by the Federal authorities consisted of payments abroad, so that the internally-effective surplus of the Federal Government the Lander and the Equalisation of Burdens Fund combined was bigger than in the first half of 1962. For 1963 as a whole, however, domestic expenditure fell short of receipts by roughly as much as in 1962. Table 2. GOVERNMENT FINANCES DM billion. 1962 1963 1961 YEAR FIRST THIRD FIRST THIRD HALF QUARTER HALF QUARTER Cash surplus or deficit ( ) : Federal Government (cid:9) 0.32 1.54 0.44 0.81 0.25 1.08 Equalisation of Burdens Fund (cid:9) 0.17 0.35--0.09 0,19--0.03 0.02 Lander(cid:9) 1.73 0.21 1.65 0.20 1.48 0.69 Total (cid:9) 1.89 1.69 1.9S 1.20 1.70 1.78 Net government payments abroad(cid:9) 3.47 4.71 1.91 1.13 2.63 1.19 Internal surplus or deficit ( ) (cid:9) 5.36 3.02 3.90 0.07 4.33 0.59 Financing, increase or decrease ( ) : Cash resources(cid:9) 1.25 0.32 1.64 0.10 2.25 1.13 ofwhich:withtheBundesbank (cid:9) 1.05 0.13 1.73 0.10 2.19 1.13 Short-termindebtedness toBundesbank 0.09 0.58--0.16 --0.74 0.00 Money market indebtedness(cid:9) 0.61 0.01 --0.24 0.02--0.03 0.01 Bonds indebtedness (cid:9) 0.11 0.72 0.12 0.54 1.23 0.38 Other (cid:9) 0.23 0.08--0.06 0.58 0.09 0.25 Source: Monthly Report ofthe Deutsche Bundesbank. Note. The data show transactions at the time of payments into, and withdrawals from, government accountswiththeBundesbank. Theytherefore differ from budgetary datawhichrecord transactions at the timethey areenteredinthegovernmentfinancialaccounts. 9. The revival of export demand dates back to the autumn of 1962. Since the fourth quarter ofthatyear, theinflowofindustrial orders from abroad has progressively risen above the level of a year earlier. With the end of the severe winter and the dockers' strike in the United States, the recovery ofexport business became clearly reflected also in shipments. This development is probably, first and foremost, a consequence of an improvement of the com¬ petitive position of German industry. Internal cost pressures eased, delivery dates shortened; and, inflationary tendencies strengthened in some important customer countries; it is signi¬ ficant that the steepest rise of exports was to Italy and France. Moreover, German industry intensified its export drive to make good the partial shortfall of home market orders. These endea¬ vours have been helped by a certain improvement ofprimary pro¬ ducing countries' export earnings and an acceleration of economic growth in the United States and the United Kingdom. Supply 10. Industrial production recovered quickly from the setback (partly caused by weather conditions) in the first quarter of 1963; 8