NATO COUNTRY ECONOMIC SUMMARIES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00287R001100970001-5
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 17
• Document Creation Date: December 22, 2016
• Document Release Date: August 20, 2010
• Sequence Number: 1
• Publication Date: November 20, 1984
• Content Type: MEMO

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q1
Memorandum for: RECORD
This memorandum was requested by William M. George
Director, International Economic Policy, Office of
the Assistant Secretary of Defense and was prepared
by the Western Europe Division.
Distribution:
Original -
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1-
1-
2-
4-
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EURA/WEA
EUR-A
Office of European Analysis
25X1
LfrI0734
Wm. M. George
DDI
NIO George Kolt
OD/EURA
Production Staff
IMC/CB
WE File
(Each country 1 st)
20Nov84
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Central lnt tgence Agency
MEMORANDUM FOR: Mr. William M. George
Director, International Economic Policy
Office of the Assistant Secretary of Defense
International Security Policy
SUBJECT : NATO Country Economic Summaries
Attached are the NATO Country Economic Summaries requested in your
19 October action memorandum. If you have any further questions or if
we can be of further assistance, please call
Director
European Analysis
Attachment:
as stated
EUR M 84-10230
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BELGIUM-LUXEMBOURG: GENERAL ECONOMIC DATA
BELGIUM
Population (1983): 9.9 Million GDP (Purchaser's Value)/Capita: $8,320
Total Output (Billion SUS - 1983 Exch Rate) 1981 1982 1983 1984*
GDP (Purchaser's Value - Current Prices) 71.3 77.1 82.0 87.3
GDP (Constant Prices - % Change by Year) -1.7 0.7 0.3 1.5
Cost-of-Living Index (1980 = 100) 110 117 122 128
LUXEMBOURG
Population (1983): 0.37 Million GDP (Purchaser's Value)/Capita: $12,700
Total Output (Billion $US - 1983 Exch Rate) 1981 1982 1983 1984*
GDP (Purchaser's Value - Current Prices) 3.8 4.5 4.7 4.9
GDP (Constant Prices - % Change by Year) 3.1 2.1 -0.4 0.1
Cost-of-Living Index (1980 = 100) 108.1 118.2 128.4 133.5
The Belgian economy is emerging from the doldrums, but tougher austerity measures25X1
and--structural weaknesses will permit only slow progress. Real growth in 1985 probably
will not exceed 1.5 percent, disappointing government hopes of attaining a 3-percent
increase. Even this small gain will be welcome, however, as the Martens government tries
to sustain its politically controversial economic recovery program. Although both Social
Christian and Liberal members of the coalition approved the tough new measures in mid-
March after protracted negotiations, the result is likely to be increased social and
regional tensions. Furthermore, the rate of unemployment has topped 12 percent and is not
likely to fall next year. These strains will test the government's resolve and stability
between now and the national elections, which must be held by fall 1985.
The principal objective of the economic recovery program is to lower the budget 25X1
deficit from 13 percent of GDP in 1983 to 7-8 percent by 1986. Prime Minister Martens
wants to achieve this ambitious reduction almost exclusively by expenditure cuts,
including decreases in cost-of-living adjustments for wages and most social security
benefits. This continued squeeze on incomes will hold down the growth of domestic
consumption, but, on the bright side, the rate of inflation is likely to slow further --
from 7 percent in 1984 to about 5 percent in 1985. The current account deficit, however,
probably will not show further improvement.
TRADE AND PAYMENTS (Billion $US, BOP Basis)
Exports of Goods and Services
Imports of Goods and Services
Balance of Goods and Services
Current Account Balance
Long-Term Capital
Total Reserves Minus Gold (yearend)
*Projected
**September
1981
1982
1983
1984*
87.3
82.9
75.5
76.4
90.2
84.4
75.2
77.0
-2.9
-1.5
0.3
-0.6
-4.2
-2.7
-0.8
-1.0
-4.6
-3.7
-5.1
-5.5
5.0
3.9
4.7
4.6**
25X1
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CANADA: GENERAL ECONOMIC DATA
Population (1983): 24.9 Million GDP (Purchaser's Value)/Capita: $13,080
Total Output (Billion $US - 1983 Exch Rate) 1981 1982 1983 1984*
GDP Purchaser's Value - Current Prices) 284.5 300.0 325.7 350.4
GDP (Constant Prices - % Change by Year) 3.3 -4.4 3.0 3.2
Cost-of-Living Index (1980 = 100) 112 125 132 138
The Canadian economy has continued its slow recovery in 1984, recording real GNP 25X1
growth of 3 percent in the first half. This rate probably will continue for the rest of
the year before falling to 2.5 percent in 1985. Consumer spending -- the driving force
behind the recovery -- is likely to remain strong. Business capital spending has slowly
begun to increase, and we expect that i-t -w-ill be -up- by 4 -percent_ in .1985.. The _.inf_l.ation
rate meanwhile has slowed to around 4 percent and probably will increase only moderately
in the coming year. Unemployment -- currently 11.3 percent -- continues to be a major
problem, with no improvement likely in 1985.
The top priority of the new Mulroney administration appears to be controlling 25X1
government spending and reducing the budget deficit -- although Finance Minister Wilson
has promised to provide $760 million for job creation in 1985. A combination of tax
increases and spending cuts -- including a reduction of 2 percent in planned defense
spending -- is designed to reduce the budget deficit in 1985 by an additional $2.7
billion, to $26.5 billion. We expect the government to propose additional reductions in
next spring's budget. 25X1
Canada's merchandise trade surplus probably will set a record in 1984 -- topping
the 3 figure of $16 billion -- and Canada will enjoy a current account surplus for the
third consecutive year. In 1985, the trade surplus is expected to decline as import
demand remains strong while slower US economic growth hurts exports. Canada's services
deficit continues to grow, and as a result the current account probably will move from a
small surplus this year to a small deficit in 1985.
TRADE AND PAYMENTS (Billion $US, BOP Basis)
1981
1982
1983
1984*
Exports of Goods and Services
83.9
82.4
87.7
96.2
Imports of Goods and Services
90.3
81.4
87.0
93.5
Balance of Goods and Services
-6.3
1.0
0.7
2.7
Current Account Balance
-5.0
2.1
1.3
0.9
Long-Term Capital
-9.7
5.9
0.5
-4.2
Total Reserves Minus Gold (yearend)
3.5
3.0
3.5
2.7**
*Projected
**September
25X1
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DENMARK: GENERAL ECONOMIC DATA
Population (1983): 5.1 Million GDP (Purchaser's Value)/Capita: $11,060
Total Output (Billion $US - 1983 Exch Rate) 1981 1982 1983 1984*
GDP (Purchaser's Value - Current Prices) 44.8 51.2 56.4 61.9
GDP (Constant Prices - % Change by Year) 0.1 3.4 2.5 3.8
Cost-of-Living Index (1980 = 100) 112 123 132 140
The Danish economy has turned around dramatically since 1982, although real GNP 25X1
growth of almost 4 percent this year may decelerate to around 3 percent in 1985. The
government has made considerable progress in reducing inflation -- from over 9 percent in
1982 to around 6 percent currently, and perhaps to 4.5 percent in 1985 -- aided by the
successful implementation of an exchange rate stabilization policy. In-turn,-the -
reduction in inflation and improved business conditions in general have resulted in an
inflow of funds from abroad.
The current government can claim three major achievements: the steady postwar 25X1
years has been sharply reversed, with very strong gains in business investment projected
for both 1984 and 1985; and wages are now increasing at their lowest rate -- around 4
percent -- in 25 years. Denmark's council of economic advisors, who agree on the need for
further improvement in the country's competitive position, are encouraged by prospects for
annual wage increases during 1985-87 within the 2-3 percent range.
growth in public spending has been halted; the persistent decline in investment in recent
While there is no great concern over the economic outlook as a whole, there are 25X1
expects to bring the current account into balance by 1988 by improving the private
sector's international competitiveness through lower inflation and interest rates, and by
containing domestic demand. Although the central government deficit is down -- from 10.8
percent of GNP in 1982 to 8.5 percent this year -- further progress will be difficult
because of high interest payments on the large and growing public debt. Unemployment also
has failed to improve significantly, due mainly to long-term structural imbalances in the
labor force.
severs problem areas. The current account deficit remains large, heavily burdened by
interest payments on a foreign debt that now equals 65 percent of GDP. The government
TRADE AND PAYMENTS (Billion $US, BOP Basis)
1981
1982
1983
Exports of Goods and Services
23.2
22.2
22.5
Imports of Goods and Services
24.9
24.3
23.5
Balance of Goods and Services
-1.7
-2.1
-1.0
Current Account Balance
-1.8
-2.2
-1.2
Long-Term Capital
1.3
2.4
2.5
Total Reserves Minus Gold (yearend)
2.5
2.3
3.6
*Projected
**September
1984*
23.3
24.9
-1.6
-1.6
NA
3.7**
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 FRANCE: GENERAL ECONOMIC DATA
Population (1983): 54.7 Million GDP (Purchaser's Value)/Capita: $9,500
Total Output (Billion $US - 1983 Exch Rate)
1981
1982
1983
1984*
GDP
(Vurchaser's Value - Current Prices)
408.3
468.3
519.2
563.7
GDP
(Constant Prices - % Change by Year)
0.2
2.0
1.0
1.0
Cost-of-Living Index (1980 = 100)
113
127
139
150
billion just two years ago -- probably will be eliminated this year and a small surplus is
expected in 1985. On a December-to-December basis, inflation could fall to about 7
percent this year and to 5.5 percent in 1985. More importantly, the inflation
differential vis-a-vis France's major trading partners has been reduced to about 3
percentage points, although further progress will be slow. Real GDP will be up about 1
percent this year, the same increase recorded in 1983, while unemployment has risen to 10
percent and is not expected to fall soon.
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The austerity program adopted in 1983 has had considerable success in reducing 25X1
inflation and improving the balance of payments. The current account deficit -- $12
stand behind them in all circumstances. 25X1
diverting resources away from consumption and toward investment. Disappointing its labor
union supporters, the government has authorized significant layoffs in mining, steel,
shipbuilding, and automobiles. In addition, by letting Creusot Loire -- a major
industrial firm -- fail, the government has put businesses on notice that it will not
During the past year the Socialists have continued their bold effort to 25X1
restructure and modernize the economy by encouraging more labor flexibility and by
to materialize under the best of circumstances. With growing political uncertainty due to
the 1986 Assembly election and the 1988 presidential contest, economic growth is likely to
remain sluggish, and it will probably be the end of the decade before unemployment falls
below 7 percent.
While the government clearly is moving in the right direction, the problems it is
addressing are deep-seated. Positive results from the new orientation thus will be slow
TRADE AND PAYMENTS (Billion $US, BOP Basis)
1981
1982
1983
1984*
Exports of Goods and Services
168.7
156.5
148.5
153.0
Imports of Goods and Services
169.3
164.0
149.0
150.0
Balance of Goods and Services
-0.6
-7.5
-0.5
3.0
Current Account Balance
-4.8
-12.1
-4.4
0.0
Long-Term Capital
-8.8
1.2
9.7
2.0
Total Reserves Minus Gold (yearend)
22.3
16.5
19.8
22.1**
*Projected
**September
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GREECE: GENERAL ECONOMIC DATA
Population (1983): 9.9 Million GDP (Purchaser's Value)/Capita: $3,490
Total Output (Billion $US - 1983 Exch Rate) 1981 1982 1983 1984*
GDP (Purchaser's Value - Current Prices) 23.1 28.7 34.5 41.3
GDP (Constant Prices - % Change by Year) -0.3 -0.1 0.2 2.0
Cost-of-Living Index (1980 = 100) 125 151 182 215
Real GDP finally will record a 2-percent increase in 1984 following three years 025X1
complete stagnation. Overall, however, the economy has continued to deteriorate as
unemployment rose above 8 percent and private investment declined for the fifth
consecutive year, while inflation remained in the 18-20 percent range. Relations between
the government and the private sector worsened as more firms came-under government control
through various devices -- ranging from government intervention to "save" them from
financial difficulties to official charges of illegal actions.
The balance of payments also worsened somewhat this year. While exports have 25X1
risen nearly 25 percent, increases in imports -- due mainly to a large rise in oil
purchases -- and a decline in invisible receipts have pushed the current account deficit
higher and it is likely to exceed $2 billion this year. Athens has increased its foreign
borrowing to finance the deficit, and the growing debt has bankers concerned.
The outlook for the economy is not very bright. With real economic growth not 25X1:.
expected to pick up in 1985, unemployment probably will edge up. Inflation meanwhile is
likely to continue in the 18-20 percent range as the public sector deficit remains around
15 percent of GDP and Athens pursues a relaxed incomes policy. The current account
deficit probably will worsen, making it increasingly likely that Athens will need to turn
to the IMF or the EC for assistance within the next two years.
TRADE AND PAYMENTS (Billion $US, BOP Basis)
1981
1982
1983
1984*
Exports of Goods and Services
9.2
7.9
7.2
8.9
Imports of Goods and Services
12.8
11.4
10.8
12.0
Balance of Goods and Services
-3.6
-3.5
-3.8
-3.1
Current Account Balance
-2.4
-1.9
-1.9
-2.1
Long-Term Capital
1.6
1.2
2.1
2.1
Total Reserves Minus Gold (yearend)
1.0
0.9
0.9
1.2**
*Projected
**August
25X1
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ICELAND: GENERAL ECONOMIC DATA
Population (1983): 0.24 million .
GDP (Purchaser's Value)/Capita:
$8,820
Total Output (Billion $US - 1983 Exch Rate)
1981
1982
1983
1984*
GDP (Purchaser's Value - Current Prices)
0.9
1.3
1.3
2.1
GDP (Constant Prices - % Change by Year)
1.6
-1.5
-5.5
-1.3
Cost-of-Living Index (1980 = 100)
151
225
418
500
Iceland's economy is expected to contract by about 1 percent in-1984 -- the third25X1
consecutive year of falling output. This is still an improvement from the sharp decline
recorded in 1983, reflecting an increase in the volume of the fish catch -- which accounts
for over 70 percent of export earnings and about 20 percent of GDP -- along with a rise in
the value of output of fishery products. While there are signs that the prolonged
recession has bottomed out, GNP has fallen almost 10 percent in 3 years, and living
standards have dropped by 17-18 percent since 1981. Unemployment has risen above 1
percent -- a high level by Icelandic standards. At the same time, inflationary
expectations are still to be broken -- the excessive wage settlements of over 20 percent
that resulted from a month-long strike in October likely will push 1984 inflation up to at
least 20 percent from a previous forecast of 13-15 percent, and the 1985 rate may be
nearer to 35 percent. 25X1
Prospects for overall economic improvement in 1985 -- despite austerity efforts of
whose major achievement was to squeeze consumer demand and reduce record inflation. Even
more important in the short term is the government's apparent failure to curb domestic
lending by the commercial banks and its excessive foreign borrowing -- the 1985 budget
deficit of $60 million was bridged primarily by borrowing abroad. Foreign debt, currently
equivalent to 60 percent of GDP, is growing, and debt service costs are roughly 22 percent
of annual export earnings. Imports also were unexpectedly high this year, pushing the
current account deficit to an alarming 4-5 percent of GDP. 25X1
the current government -- appear slim. In hindsight, government officials admit the main
problem since May 1983, when the austerity program was launched, has been the failure to
follow sufficiently strict fiscal and monetary policies to back the original package,
Over the longer term there is great concern about Iceland's ability to tackle the
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environment. The government has indicated its intention to invest in and develop the
aluminum and ferro-silicon industries -- which account for over half of non-fishing export
s ru al readjustments needed to adapt the economy to a more competitive international
earnings -- as well as geothermal and hydroelectric power. These areas, however, along
with the construction sector, probably are the most vulnerable to expenditure cuts if it
becomes necessary to moderate a renewed inflationary surge.
TRADE AND PAYMENTS (Billion $US, BOP Basis)
1981
1982
1983
1984*
Exports of Goods
and Services
1.22
1.05
1.10
NA
Imports of Goods
and Services
1.36
1.31
1.15
NA
Balance of Goods
and Services
-0.14
-0.26
-0.05
NA
Current Account Balance
-0.14
-0.26
-0.05
NA
Long-Term Capital
0.20
0.21
0.08
NA
Total Reserves Minus Gold (yearend)
0.23
0.15
0.15
0.11**
*Projected
**August
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ITALY: GENERAL ECONOMIC DATA
Population (1982): 56.8 Million GDP (Purchaser's Value)/Capita: $6,210
Total Output (Billion $US - 1983 Exch Rate) 1981 1982 1983 1984*
GDP Purchaser's Value - Current Prices) 264.4 310.4 352.8 398.7
GDP ('Constant Prices - S Change by Year) 0.2 -0.4 -1.2 2.2
Cost-of-Living Index (1980 = 100) 118 137 157 174
This year Italy finally rebounded from the international recession and will 25X1
probably attain a growth rate of just over 2 percent, largely on the strength of a pickup
in consumption spending and exports. Inflation meanwhile has slowed, partly because of
restraint on wage growth due to a ceiling on wage indexation. Prices this year will be up
about 11 percent -- down from 15 percent in 1983 but still higher than the rates for other
major industrialized countries.
On the down side, economic recovery has caused import growth to outpace export 25X1
gains in both volume and value. As a result, the trade deficit expanded by nearly $1
billion in the January-August period and contributed to a deterioration in the current
account balance. In addition, unemployment continues to rise, hitting 10.1 percent in
July, largely because many of the big firms have been trimming their excess workforces.
Rome recently set its principal economic objectives for 1985. These include 25X1'
limiting the inflation rate to 7 percent, the current account deficit to about $1 billion,
and the budget deficit to about $58 billion (14.4 percent of GDP), while still achieving a
GOP growth rate of 2.5 percent The budget and inflation targets are likely to prove
elusive. Prime Minister Craxi's Socialist-led government seems reluctant to reduce or
even control spending in the politically sensitive health and pension sectors. Moreover,
proposed tax increases are running into opposition from parliament and business. Wage
costs, a major contributor to Italy's inflation problem, could also prove difficult to
contain. Most major industrial contracts will be up for renewal next year, and unions are
taking a hard line on any significant modifications in Italy's wage indexation system -- a
key employers' demand. Lack of effective action on wages and the budget deficit will
probably keep inflation in the double-digit range.
Trade and Payments (Billion $US, BOP Basis)
1981
1982
1983
1984*
Exports of Goods and Services
100.5
98.9
96.2
112.0
Imports of Goods and Services
109.9
105.5
98.0
115.5
Balance of Goods and Services
-9.4
-6.7
-1.8
-3.5
Current Account Balance
-8.6
-5.7
-0.6
-2.1
Long-Term Capital
8.5
5.1
-0.3
NA **
Total Reserves Minus Gold (yearend)
20.1
14.1
20.1
20.1
*Projected
**September
25X1
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NETHERLANDS: GENERAL ECONOMIC DATA
Population (1983): 14.4 Million GDP (Purchaser's Value)/Capita: $9,140
Total Output (Billion $US-1983 Exch Rate) 1981 1982 1983 1984*
GDP iurchaser's Value - Current Prices) 123.8 128.7 131.6 138.3
GDP (Constant Prices - % Change by Year) -0.8 -1.6 1.2 1.5
Cost-of-Living Index (1980 = 100) 107 113 116 120
austerity program probably will keep growth below 2 percent in 1985 with investment and
exports again likely to, lead the expansion. Unemployment has continued to rise --
reaching 14 percent according to the OECD definition or 17.5 percent -according to the
Dutch measure -- with little hope for improvement in 1985. Inflation has accelerated
somewhat this year, to 3.5 percent, but likely will fall to 2 percent in 1985, because of
moderation in labor costs and the expected appreciation of the guilder. 25X1
The Dutch economy is growing at a modest 1.5-percent pace in 1984, led by a rise 25X1
The Hague faces increased political and social pressures as it continues to reduce
The current account surplus increased strongly in the first half of 1984 because 25X1
of a significant increase in energy exports and because low uutcn inflation rates have
boosted export price competitiveness. Slow economic growth will keep import demand
moderate and probably will contribute to a larger surplus on the trade and current account
balances in 1985.
TRADE AND PAYMENTS (Billion $US, BOP Basis)
1981
1982
1983
1984*
Exports of Goods and Services
91.1
88.0
84.1
88.1
Imports of Goods and Services
86.8
84.9
79.5
78.9
Balance of Goods and Services
4.4
3.1
4.6
9.2
Current Account Balance
2.9
3.7
3.6
5.2
Long-Term Capital
-2.7
-3.4
-2.1
-1.7
Total Reserves Minus Gold (yearend)
9.3
10.1
10.2
9.6**
*Projected
**September
in business investment and exports; consumer spending is down slightly. The government's
the budget deficit -- more than $12 billion in 1984, or approximately 9.6 percent of GDP
-- by cutting back social welfare spending. The Dutch have exceeded their budget
reduction goals in 1984 and should be successful in reaching their 1985 goal of reducing
the deficit to 8.9 percent of GDP. Lower borrowing requirements by the government
combined with an expected increase in available funds should allow interest rates to fall
slightly.
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NORWAY: GENERAL ECONOMIC DATA
Population (1983): 4.1 Million GDP (Purchaser's Value)/Capita: $13,400
Total Output (Billion $US - 1983 Exch Rate) 1981 1982 1983 1984*
GDP Purchaser's Value - Current Prices) 45.3 49.7 55.0 60.2
GDP (Constant Prices - % Change by Year) 0.8 -0.6 3.2 3.2
Cost-of-Living Index (1980 = 100) 114 127 137 146
The Norwegian economy is expected to grow less than 2 percent in 1985 because of 25X1
slower expansion of the oil production that has provided most recent growth and brought
the oil sector's contribution to over 17 percent of GDP. Industrial production is
forecast to increase about 2 percent, after being nearly stagnant since the late 1970s --
the result of the world recession's impact on demand for Norwegian raw materials and semi-
manufactures. Both import and export growth will slow, but Norway still is expected to
have a large positive trade balance next year and a current account surplus of over $2.5
billion. Although oil production will level off for the remainder of the decade as older
fields decline, the value of output and of government revenues is expected to remain
stable. A more serious threat to the Norwegian economy would be a sharp decline in the
dollar exchange rate or a fall in oil prices.
Inflation has fallen from 8.5 percent in 1983 to about 6.2 percent this year -- 25X1
still higher than major competitor countries -- and wage increases of over 7 percent have
undermined government efforts to improve international competitiveness. The krone's
continued appreciation against Norway's major European trade partners has also hurt
Norwegian trade. The government expects inflation to dip below 6 percent next year, but
the record suggests that it has faint hope of holding wages to the 5 percent target it has
established. The Central Bank has recently announced measures that have the effect of
depreciating the krone 2 percent in an effort to prevent a further decline in
competitiveness.
The 1985 election year budget reflects the Conservative-led government's concern 25X1
ovens major weakness -- a politically damaging unemployment rate that has averaged
close to 4 percent this year. The planned tax reductions and job creation measures
probably will not have a significant impact on unemployment, however. Despite the strong
fiscal stimulus to the nonoil economy, revenue from taxes on North Sea oil production will
produce an overall budget surplus of nearly $1 billion. Oil taxes provided nearly 12
percent of budget revenues this year and enabled the government to support social programs
without threatening the commitment to 3.5-percent real growth in defense spending.
TRADE AND PAYMENTS (Billion $US, BOP Basis)
1981
1982
1983
1984*
Exports of Goods and Services
28.7
27.3
26.8
29.1
Imports of Goods and Services
25.8
26.0
24.0
25.0
Balance of Goods and Services
2.9
1.3
2.8
4.1
Current Account Balance
2.2
0.7
2.2
3.4
Long-Term Capital
-0.7
0.3
-1.5
NA
Total Reserves Minus Gold (yearend)
6.3
6.9
6.6
8.4**
*Projected
**August
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PORTUGAL: GENERAL ECONOMIC DATA
Population (1983): 10.0 Million GDP (Purchaser's Value)/Capita: $2,050
Total Output (Billion $US - 1983 Exch Rate)
1981
1982
1983
1984*
GDP (Purchaser's Value - Current Prices)
13.5
17.0
20.5
26.3
GOP (Constant Prices - % Change by Year)
1.8
3.0
-0.5
-1.5
Cost-of-Living Index (1980 = 100)
120
147
184
240
Lisbon should cut last year's $1.7 billion current account deficit by more than 25X1
half, easily coming in under targets established by its 1983 standby agreement with the
IMF. Imports continue to fall, reflecting declines in real disposable income and
investment. Merchandise exports should be up at least $500 milion because of slack
domestic demand, a pickup in West European growth, and last year's 12-percent
devaluation. The sharp improvement in the current account deficit has alleviated Lisbon's
liquidity problems. Portuguese authorities sought only one $400 million loan on the
international financial markets this year and have sold only $50 million worth of gold,
down from $700 million in 1983. 25X1
The Soares government is not abiding by other terms of the IMF standby program,
however , and the Fund has refused to allow Lisbon to resume drawings. Short-term debt and
public sector domestic credit exceeded the ceilings the Fund set for 31 July because
Lisbon has not established controls on state enterprises' borrowing. In addition, Lisbon
has backed away from raising prices on government-subsidized goods and has exceeded the
IMF's limit for the budget deficit. The Portuguese are also dragging their feet on
restructuring inefficient public sector firms and have not reached an agreement with the
World Bank on terms for assistance. 25X1
With the IMF stabilization program ending in February 1985, Lisbon is coming to
another crossroads. The Soares government recognizes the dangers of abruptly switching to
an expansionary policy, but the fall elections make continued austerity politically
unsustainable. At the end of 1984, real wages will be about 20 percent lower than they
were three years ago and Lisbon almost certainly will not resist pressure to ease up.
Given the sensitivity of import demand to increases in real income, the current account
deficit will start to swell. Another appeal to the IMF can be ruled out in the near term;
over the longer run, Lisbon's past inability to balance its domestic objectives against
its balance-of-payments constraints suggests that a new round of stop-and-go policies is
possible.
TRADE AND PAYMENTS (Billion $US, BOP Basis)
1981
1982
1983
1984*
Exports of Goods and Services
6.
-5.8
6.8
Imports of Goods and Services
11.9
11.7
10.0
9.5
Balance of Goods and Services
-5.6
-5.9
-3.7
-2.7
Current Account Balance
-2.8
-3.2
-1.7
-0.7
Long-Term Capital
1.8
2.6
1,3
0.5
Total Reserves Minus Gold (yearend)
0.5
0.4
0.4
0.8**
*Projected
**August
25X1
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SPAIN: GENERAL ECONOMIC DATA
Population (1983): 38.2 Million GDP (Purchaser's Value)/Capita: $4,160
Total Output (Billion $US - 1983 Exch Rate)
1981
1982
1983
1984*
GDP
(.Purchaser's Value - Current Prices)
120.8
138.6
158.8
178.8
GDP
(Constant Prices - % Change by Year)
0.2
1.2
2.3
2.5
Cost-of-Living Index (1980 = 100)
114
131
147
160
Madrid will come close to meeting most of its goals this year, with the major 25X1
exception of unemployment -- now close to 20 percent. Real GDP growth will hit the
government's 2.5-percent target, due almost entirely to strong export demand. Spurred by
the recovery in the major industrial countries and by an improvement in price
competitiveness, real exports were up by more than 20 percent during the first half,
compared with the same period last year. Domestic demand shows signs of weakening and
both private consumption and investment probably will fall in real terms.
Slack demand, smaller wage gains, and a moderation of import prices should bring 25X1
Inflation down about 3 percentage points to 9 percent in 1984. Meanwhile, the export
drive and slower import demand are producing a dramatic improvement in the current account
balance -- we expect a deficit of only $0.5 billion this year, down from $2.5 billion in
1983 and $5.0 billion in 1981. 25X1
Madrid is counting on a strong revival of investment to push real GDP up 3 percent
next year and has introduced a three-pronged policy to achieve its objective. The better-
than-expected current account performance has prompted the government to ease its monetary
policy to stimulate investment growth. The Socialists have also put forward a draft
budget that aims at trimming the budget deficit from 5.5 percent of GDP this year to 5
percent in 1985 in order to avoid crowding out private investment. In addition, the
Gonzalez administration has hammered out an agreement covering wage guidelines and fiscal
policy with the Socialist UGT trade union and with business. Labor leaders accepted a
slight cut in real wages next year in return for Madrid's promise to expand unemployment
benefits coverage and create new public sector jobs. Businessmen won a slight reduction
in their share of social security contributions. These measures will lower labor costs
and encourage hiring; even so, the government projects that unemployment will come down
less than 1 percentage point.
TRADE AND PAYMENTS (Billion $US, BOP Basis)
1981
1982
1983
1984*
Exports of Goods and Services
34.4
34.8
33.6
36.1
Imports of Goods and Services
41.0
40.6
37.2
36.6
Balance of Goods and Services
-6.6
-5.8
-3.6
-0.5
Current Account Balance
-5.0
-4.1
-2.5
-0.5
Long-Term Capital
4.2
1.8
2.2
5.2
Total Reserves Minus Gold (yearend)
10.8
7.9
7.4
11.8**
*Projected
**August
25X1
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TURKEY: GENERAL ECONOMIC DATA
Population (1983): 49.2 Million GDP (Purchaser's Value)/Capita: $1030
Total Output (Billion $US - 1983 Exch Rate)
1981
1982
1983
1984*
GDP Purchaser's Value - Current Prices)
33.9
38.1
50.8
78.5
GDP (Constant Prices - % Change by Year)
4.7
4.3
3.8
5.5
Cost-of-Living Index (1980 = 100)
138
183
235
348
Prime Minister Ozal has come under increasing criticism for the rise in the 25X1
inflation rate -- now about 55 percent -- even though much of this increase is the result
of overdue price increases on state sector goods, or is attributable to the loose economic
policies followed by the previous government. Inflation recently has shown signs of
slowing, and it is expected to fall to around 30-35 percent in 1985. With the industrial
sector -- exports in particular -- leading the way, GDP growth will exceed 5 percent this
year. Economic growth should continue at a 5-percent pace in 1985, but unemployment will
remain around 20 percent because the growth in employment will be largely offset by an
increase in the labor force.
The balance of payments has improved in 1984, due mainly to a substantial rise in25X1
expor ss -- up 32 percent in dollar value in the first eight months. Imports have risen
only moderately, and the trade deficit has narrowed by nearly one-fourth. Rising interest
payments on rescheduled debt and a sharp drop in tourism receipts, however, have slowed
the improvement in the current account. The outlook for 1985 is encouraging, with exports
expected to rise 10-15 percent and the current account deficit expected to narrow slightly
to around $1.4 billion.
Despite the progress made since 1979, Turkey's economic condition remains
ram gile. Ankara will continue to need substantial amounts of aid as large payments on
rescheduled debt began falling due this year and will peak in 1985. Ozal's political
position has weakened as opposition to his program has grown and problems within his own
party have emerged. We believe, however, that Ozal's government is not in danger of
falling in the near term and that his economic policies could lay the foundation for
ctAhlp th
given the time to work.
,
TRADE AND PAYMENTS (Billion $US, BOP Basis)
1981
1982
1983
1984*
Exports of Goods and Services
5.9
7.9
8.1
10.5
Imports of Goods and Services
10.4
10.9
11.4
13.0
Balance of Goods and Services
-4.5
-3.0
-3.3
-2.5
Current Account Balance**
-1.9
-1.3
-2.2
-1.5
Long-Term Capital
0.4
0.1
-0.6
NA
Total Reserves Minus Gold (yearend)
1.3
0.9
1.3
1.0***
*Proected
Before debt relief
***September
25X1
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UNITED KINGDOM: GENERAL ECONOMIC DATA
Population (1983): 55.8 Million
GDP (Purchaser's Value)/Capita:
Total Output (Billion $US-1983 Exch Rate)
1981
1982
1983
GDP
'(Purchaser's Value - Current Prices)
381.7
418.3
456.3
GDP
(Constant Prices - % Change by Year)
-0.9
2.2
3.5
Cost-of-Living Index (1980 = 100) 112
122
127
forecasters estimate that it has shaved growth this year by at least 1 percentage point to
around 2 percent. Nevertheless, with low inflation -- currently 4.5 percent -- falling
interest rates, and a record low pound value against the dollar, investment and exports
are expected to fuel the economy next year and make up for sluggish consumer spending;
real GDP growth consequently should rebound to 3 percent, if the miners' strike is settled
before spring. Unemployment, however, will continue to rise beyond the current 13 percent
of the workforce. While Thatcher has publicly identified this as a major economic
priority, London probably will not institute any specific jobs programs but instead may
address the problem with tax reforms designed to reduce the cost of hiring additional
workers. 25X1
Britain even though the miners' strike will add to budget overruns this year of at least
$2 billion. Compounding the budget problem are large outlays for unemployment
compensation, cuts in oil taxation designed to spur exploration, and the ongoing
difficulties of the nationalized industries. The government thus is likely to have
trouble meeting its ambitious goal of reducing the deficit to $10.9 billion for FY
1984/85. The Treasury, however, expects to realize $3.2 billion during 1985 from sales of
nationalized companies to private investors, which should partially ease the current
budget crunch. 25X1
reducing the country's net surplus in oil trade.
TRADE AND PAYMENTS (Billion $US, BOP Basis)
1981
1982
1983
1984*
Exports of Goods and Services
157.2
147.1
138.8
141.1
Imports of Goods and Services
138.2
133.6
131.0
138.1
Balance of Goods and Services
19.0
13.5
7.8
3.0
Current Account Balance
15.1
9.8
4.4
-1.0
Long-Term Capital
-18.0
-15.1
-11.4
-17.1
Total Reserves Minus Gold (yearend)
15.2
12.4
11.3
9.2**
September and the cumulative balance for 1984 probably will be a deficit of $1 billion --
far below the Treasury's March forecast of a $2.8 billion surplus. The miners' strike
again is responsible for much of the deterioration. In addition to cutting coal and steel
exports, it has caused London to maximize the use of oil for electricity generation,
*Projected
**September
$8,150
1984*
486.0
2.0
13325X1
The coal miners' strike, which began in March, has hurt the economy; most
Prime Minister Thatcher has reaffirmed a tight fiscal and monetary stance for
Britain's current account registered record monthly deficits in April and
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WEST GERMANY: GENERAL ECONOMIC DATA
Population (1983): 61.5 Million GDP (Purchaser's Value)/Capita: $10,620
Total Output (Billion $US - 1983 Exch Rate) 1981 1982 1983 1984*
GDP (Purchaser's Value - Current Prices) 605.2 627.6 653.4 684.0
GOP (Constant Prices - % Change by Year) -0.3 -1.1 1.3 2.5
Cost-of-Living Index (1980 = 100) 106 110 114 118
West Germany is enjoying the best growth performance among the major West European
economies in 1984, and we expect continued moderate expansion next year. Exports are the
driving force behind growth as West German manufacturers take advantage of the strong
dollar to expand foreign market shares. The traditional export sectors -- steel,
chemicals, autos, machinery, and engineering -- are all benefiting. Foreign demand will
remain the main source of growth in 1985, although export volume will not match the 8-
percent increase estimated for this year. Private investment is proceeding at an
acceptable 4 to 5 percent annual rate, as firms push modernization programs delayed by the
recession. Other components of the economy are not faring as well, however. Private
consumption has remained weak due to slack labor market conditions while Bonn's devotion
to budget-balancing has imposed austerity on public consumption and investment. 25X1
Consumer price increases this year and next will fall within the 3-4 percent
range, continuing evidence of Bonn's success in taming inflation. Unemployment remains
the most intractable problem; the 9.4-percent unemployment rate recorded in 1984 is
exceptionally high by historical standards, and no improvement is in sight. The expected
moderate rate of economic growth will not generate many new jobs while high labor costs
are causing German firms to adopt more capital-intensive production techniques. The Kohl
government has no comprehensive plan to deal with unemployment, but the opposition,
preoccupied with security and foreign policy matters, has not effectively exploited this
issue.
TRADE AND PAYMENTS (Billion $US, BOP Basis)
1981
1982
1983
1984*
Exports of Goods
and Services
219.9
219.5
209.8
212.9
Imports of Goods
and Services
213.7
204.4
195.3
198.5
Balance of Goods
and Services
6.2
15.1
14.5
14.4
Current Account Balance
-5.7
3.4
4.0
3.9
Long-Term Capital
3.5
-6.7
-2.6
-3.0
Total Reserves Minus Gold (yearend)
43.7
44.8
42.7
40.9**
*Projected
**September
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