FOREIGN ECONOMIC PROSPECTS IN 1974

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001900020107-8
• Release Decision: RIPPUB
• Original Classification: U
• Document Page Count: 21
• Document Creation Date: December 20, 2016
• Document Release Date: July 28, 2005
• Sequence Number: 107
• Publication Date: May 1, 1974
• Content Type: MF

 Approved For Release 2005/0812,2 . C4A-RQP85TQ0875ROO1900020?7 8 /
CENTRAL INTELLIGENCE AGENCY
WASHINGTON. D.C. 20505
7V
1 May 1974
ME:?:OR\NDU':I FOP: Mr. Richard Erb
Council on International Economic Policy
Old Executive Office Building
SUBJECT Foreign Economic Prospects in 1974
The attached table and annex were prepared in
response to your request on 29 April for our assessment
of foreign economic prospects in 1974. Our estimates,
and the latest OECD estimates, of the likely rate of
growth in real GNP and the GNP price deflator, and
estimates of the current account balance, for Canada,
Japan, France, West Germany, Italy, and the United Kingdom
are presented in the table. More detailed growth, price,
and trade forecasts by country and accompanying notes are
in the annex.
Attachment: a/s
f l;i~
HI:
MICRO ONLY
STAT
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'? V~?I ~JYI` 4v(~ IY
Distribution: (S-6148).
Advanced copy LDX'd 1 May
1 - Addressee
1 - D/OER
STAT
(1 May 1974)
U''1l~''
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U L.,.;: L, .' 1
OECD and CIA Projections
Canada
Japan
France
Germany
Italy
United Kingdom
Canada
Japan
France
Germany
.Italy
United Kingdom
Canada
Japan
France
Germany
Italy
United Kingdom
Total Year 1974 1st Half 1974 2nd Half 1974
Estimated Estimated Estimated
OECD-!/ CIA!/ OECD) CIA2/ OECD CIA2/.
REAL GNP GROWTH (percent change)
4.3 4.5 4.0 5.0 5.0 4.0
1.8 4.0 -.5 1.0 5.5 6.0
4.3 3.8 4.0 3.8 3.3 4.6
.8 2.5 1.0 2.6 2.3 4.6
5.0 3.0 3.0 0.6 4.0 1.8
-2.5 -2.0 -11.0 -8.0 12.5 9.0
GNP DEFLATOR (percent change)
8.0 8.2 8.5 8.5 7.3 7.8
16.5 25.0 17.0 32.0 12.8 10.0
12.0 10.0 13.8 11.0 11.5 9.0
7.0 7.0 7.0 9.8 6.0 8.4
11.0 15.0 10.0 18.0 13.5 11.0
10.5 11.0 10.E 14.0 14.0 9.0
LURRENT ACCOUNT BALANCE (billion US $)
0 -1.2 0 -.5 0 -.7
-7.5 -7.9 -4.0 -5.9 -3.5 -2.0
-3.5 -4.3 -2.0 -2.0 -1.5 -2.3
-1.0 2.5 0 1.5 -1.0 1.0
-5.5 - -3.0 ?- -2.5 -
-8.0 -9.0 -4.0 -5.0 -3.5 -4.0
1 As reported in CIEP Paper 4 February 1974
2/ See country annex
CIA/OER
1 May 1974
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Canada
1974 Prospects
Canadian real GNP will probably increase about
4.5% this year, the best performance of any developed
country. The economy should grow around 5% in the first
half, spurred by strong investment demand in manufacturing
and the resource industries. Growth should slow, however,
to about 4% in the second half because of sluggish export
demand. OECD and official growth estimates are similar to
our own.
We expect the GNP price deflator to increase about
8.2o this year, or at about the same rate as predicted
by the OECD. The slowing of the rate of price increase
at the end of 1973* proved to be temporary and the rate
of inflation accelerated in the first quarter. Inflation-
ary pressures are likely to remain strong during the
remainder of the year because of increasing oil prices,
remaining supply and capacity constraints, and rising
wages. Labor unions are expected to secure wage hikes
at 10-11% in the current round of negotiations.
The Canadian current account is expected to show a $1.2
billion deficit this year, $1.2 billion more than.expected
by the OECD. The trade surplus should decline from $2.1
billion in 1973 to $1.4 billion. This is primarily due to
the economic slowdown abroad and its depressing effects on
exports, and the rapid growth of Canadian imports.
Government Policies
Canada is continuing its moderately expansionary
monetary and fiscal policies, although there are indications
that monetary policy will tighten somewhat. The monetary
authorities are very concerned about last year's rapid
money supply growth and continuing strong inflationary
pressures. Trudeau's minority government, however, is not
expected to take strong action to combat inflation.
Ottawa has indicated that the now federal budget is
intended to support demand and if serious unemployment
problems develop later in the year, it probably will request
supplementary outlays from Parliament.
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CANADA
1973
GNP Constant Prices
7.1
GNP Price Deflator
7.1
Consumer Prices
9.2
Wholesale Prices
25.7
Money Supply (ml)
14.4
Money Supply2
13.4
Trade Balance
2.1
Current Account
Balance
-.3
1st Qtr 1st Half 2nd-Half
1974 1974 1974 1974
Preliminary Estimated Estimated Estimated
--
5.0
4.0
4.5
--
8.5
7.8
8.2
11.2
21.6
12.4
28.4
.1
Billion US $
.6
1.4
-.5
-.7
-1.2
0.'0
-.2
-.2
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85T00875R001900020107-8
1974 Pros=.-cts
We ex _ct .7apanese real G:;? to grow 3-5% this
year, compared with a long-run average growth rate of
more than !C-' . The economic slowdown is the sharpest
since the ? 95 3s. G:;? should pro;; only about 1% (at
an annual rate) during the first half of the year. A
Modest recc-:ery will boost the economy's growth to
around 6=_ _. the second half, assuming government mone-
tarv.and fiscal policies become somewhat less restrictive.
This projection is somewhat optimistic, although
most forecasters predict some recovery in the second half.
The OECD expects real GNP to decline about .5% in the
first half of t '-e year and then to grow around 5.5% in
the second half. The respected Japanese Economic Research
Center predicts that real GNP growth for the calendar year
will a%-e_a=e only 2.8%, while the official growth forecast
for the -fiscal year ending 31 ::arch 1975 is only 2.5%.
The GNP price deflator is expected to increase about
25% this year, substantially more than predicted by the
OECD. The rate of price increase during the first quarter
apparently exceeded 40%, but tighter monetary and fiscal
policies and patchwork price controls apparently are
having a dampening effect. of ter showing big jumps in
January and February, the wholesale and consumer price
indices increased less than 11 in March. Nevertheless,
major price hikes for oil implemented on 18 March and
a round of wage settlements approaching` 30% will push
prices up in coming months, although not as fast as they
rose in the first quarter.
We expect the Japanese current account to show a
nearly SB billion deficit in 1974, about the same as
expected by the OECD. The trade balance is expected
to shift f--cm a $3.7 billion surplus in 1973 to a $2.3
billion deficit. A rapid increase in exports to develop-
ing countries during the first quarter was more than
offset by import growth; hither prices boosted the value
of oil imports to triple the level of last year, while
non-oil imports continued to grow rapidly. Imports will
continue to run well ahead of last year because of high
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prices, although non-oil imports are showing some
signs of slackening. The value of exports, according to
leading indicators, should continue to in^rease 35-40?
through mid-year. Only a small increase in export volume
has occurred thus far. Demand for many products will
remain high, however, and Japanese manufacturers are
increasingly socking to expariu exports to offset declines
in domestic sales.
Government Policies
The government will probably continue its moderately
restrictive monetary and fiscal policies at least until
the July elections. Indeed, Finance Minister Fukuda has
said that restraints will be continued until autumn to
minimize the cost-push effect of the spring wage increases
and rising oil prices. Continuing concern about inflation
makes a relaxation of restrictive policies difficult until
some progress is evident in controlling prices. Neverthe-
less, flagging demand for both investment goods and consumer
durables will probably force some relaxation of government
policies. If Tokyo waits until autumn, real GNP growth for
the year will not exceed 3%. If it acts sooner, 5% growth
can be attained, but at some cost in terms of inflation.
IU JaI Ul" ~L C%jj.Y
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Eva c;: iLa C 1 !
1st Qtr 1st Half 2nd-Half
1974 1974 1974 ' 1974
1973 Preliminary Estimated Estimated Estimatc:l
Percentage Change at Annual Rate-
GNP Constant Prices 11.0
GNP Price Deflator 12.2
Consumer Prices 11.7
Wholesale Prices 15.8
Money Supply (ml) 16.8
Money Supply (m2) 16.8
Trade Balance 3.7
Current Account
Balance -.1
Basic Balance -9.8
Official Reserves?" 12.2
1/Change from previous period
?/End of period
--
--
39.6
58.4
1.0
32.0
6.0
10.0
4.0
25.0
--
--
Billion US $
-1.8
-3.1
0.8
-2.3
-3.2
-5.9
-2.0
-7.9
-4.8
-8.5
-4.0
-12.5
12.4
FG?c.srt~,~,~
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France
1974 Prospects
We expect French real GNP to grow 3.8% in 1974.
Both domestic and foreign demand will remain strong and
production of capital and intermediate goods is at near
capacity levels. Output of consumer goods has dipped
slightly since January, however, primarily because of
declining automotive sales. Growth in the first half
of the year will consequently slow to around 3.8% (at
an annual rate). In the second hai.` of the year, automo-
tive sales should recover and real GNP growth should
increase to about 4.6%. These projections are similar to.
those of the OECD.
The French GNP price deflator should increase around
10% this year, slightly less than predicted by the OECD.
Consumer prices rose 18% during the first quarter while
wholesale prices increased a phenomenal 71%. In both
cases, higher oil prices were a major factor. The rate
of inflation will decline through the remainder of 1974,
but only because much of the effect of the oil price
increase is now past. Consumer prices will continue to
climb about 1% a month, bringing the total 1974 increase
to about 13%.
We expect the French current account to show a $4.3
billion deficit i;i 1974, almost $1 billion more than
expected by the OECD. The trade balance should shift
from a $1.6 billion surplus in 1973 to a $3.3 billion
deficit this year. A strong export surge held the first
quarter trade deficit to about $.7 billion, slightly less
than anticipated. Nevertheless, the trade accounts should
deteriorate through the remainder of the year, primarily
as a result of higher oil import costs.
Government Policies
French policy continues to focus on inflation.
Monetary policy remains tight and tax collections have
been accelerated. Price controls have also been tightened
and the government is exerting considerable pressure on
~l~ ! : ji.? ct .t:: r j?.
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LY
business to hold down wage increases. To restrain
domestic demZnd and free more goods for export, Paris
wants little or no growth in real consumer purchasing
power this year -- a difficult goal to attain. If the
growth rate drops much below 4% in the second half,
fiscal stipulation will probably follow -- most likely
in the form of a cut in the value added tax.
FC~11 CFFIC1.
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1. .:?I 1Ui.::. V4. :,L
1st Qtr 1st Half 2nd-Half
1974 1974 1974 1974
1973 Preliminary Estimated. Estimated Estimated
Percentage Change at Annual Rate1/
'1 nr!' !t 'flr n~
tj'LY
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GNP Constant Prices 6.1
GNP Price Deflator 6.9
Consumer Prices 8.5
Wholesale Prices 21.6
Money Supply (ml) 10.6
Money Supply (m2) 14.9
Trade Balance 1.6
Current Account
Balance -0.2
Basic Balance -2.3
--
--
18.0
71.0
-32.3
-8.6
3.8
11.0
Billion US $
4.6
9.0
3.8
10.0
-0.7
-1.5
-1.8
-3.3
--
-2.0
-2.3
-4.3
--
E Official Reserves?' 8.5 8.1
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1974 Prospccts
We c-tpect 'west German* real GNP to increase 2.5%
in 1974. Growth during the first half of the year will
be impeded by lagging consumer demand resulting from
last year's restrictive fiscal and monetary policies.
In the second half, growth should accelerate as consumer
demand picks up. The order backlog for capital goods
rose in tlarcil for the first time since 1973. Some increase
in demand is also reported for consumer non-durables and
construction. This forecast is somewhat more optimistic
than that of the OECD.
The GNP deflator will probably increase 7% this
year, primarily as a result of higher fuel, material,
and wage costs. Recent wage settlements have averaged
around 14-15. Consumer prices should increase around 10%
in 1974. Although favorable by international st::ndards,
these rates are high for West Germany. OECD price fore-
casts are similar to our own.
We expect a $2.5 billion surplus on West Germany's
current account in 1974, or $3.5 billion more than expected
by the OECD. The trade balance will remain in massive
surplus -- about $9 billion -- despite soaring prices for
imported raw materials, particularly oil. Strong foreign
demand through most of the year and accelerating price rises
will boost the value of exports. Net capital inflows may
also resume because of Germany's relaxatdon of capital
restrictions and the continuing strength of the mark, making
it attractive to foreigners, including Arab investors.
Government Policies
Concern that tho energy crisis would turn the govern-
ment-induced 1973 economic slowdown into a full-fledged
recession has forced the government to rescind most of its
fiscal stabilization measures., Monetary policy, however,
remains tight. At the present time,. the go.-crnment cannot
decide on the relative priority to be afforded 'to employment
stress policies
promoting full emalovment. while 1-h.-
 Democrats,as well as the opposition Christian Democrats,
espouse fiscal measures aimed at further dampening demand
to reduce inflation. The delicate balance that seems to
exist between the two camps and continuing economic uncer-
tainty will apparently result in the continuation of present
policies through the remainder of 1974.
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 1973
GNP Constant Prices 5.3
GNP Price Deflator 6.1
WEST GERMANY
1st Qtr let alf
1974 19;4
Preliminary Estimated
2nd Half
1974
Estimated
1974
Estimate
2.6
4.6
2.5
9.8
8.4
7.0
Consumer Prices 6.9 7.?
Wholesale Prices 6.7 12.8
Money Supply (ml) 1.0 1.2
Money Supply (m2) 14.4 --
Billion US $
Trade Balance 16.0 5.5
Current Account
Balance 3.5
1/Chan4e from previous period
2/End of period
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5.5
3.5
9.0
1.5
1.0
2.5
1.'S
1.5
3.0
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ITALY
Italy's policies are being reassessed in light of
the new import measures announced today. The estimates on the
table should be viewed as tentative.
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 1st Qtr. lst Half 2nd Half
1974 1974 1974 1974
1973 Preliminary Estimated Estimated Estimated
GNP Constant Prices 5.1
--
0.6
GNP Price Deflator 11.0
--
18.0
Consumer Prices 12.5 24.4
Wholesale Prices 21.2b/
Money Supply (ml) 20.9
Money Supply (m2)
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3.1.0 15.0
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United :ir,cidom
1974 Pro=-~c:s
We expect British real G_i? to decline 2% this year
-- the _first decline since 1952. As a result of the coal
strike, weakening consumer demand and government measures
to slow inflation, GNP %..ill plummet 8? (at an annual rate)
during the first half of the ::ear, but then should recover
sharply. In ..:_trial output probably at fell by a' least 15%
in t lie ~=i r., _- st
- :tarter :,cause of the 3-ci v ~:orkweek, and
some fari s .._ .-e not yet res::-.ed normal work schedules
because of s:- rta: _ .
OECD estimates are
similar to own while official estimates are somewhat
o: timist.i c, indicating no decline in real GNP.
The Wilson government probably will be unable to
prevent the GNP deflator from rising about 11% this year,
about the rate predicted by the OECD. Rising oil costs
and wage increases intensified inflationary pressure in
the first quarter. Consumer prices rose at an annual
rate of 19.7z,. The 30% pay raise recently granted to
coal miners and substantial stage increases expected for
other workers will generate continuing up-ward pressure
on prices. Prices also will continue to be pushed up
by higher oil gists.
We expect the British current account to show a
record $9 billion deficit this year, or $1 billion more
than.axpecZed by the OECD. The oil price hikes will add
about $5 billion to the import bill, resulting in a record
$11 billion trade deficit. Export demand has held up.
we3.1 because of sterling's depreciation, but export
volume has stagnated because of production problems. These
problems should ease by the third quarter. Stagnant export
volume, along with the increased cost of imported oil,
boosted the First quarter trade deficit to $2.9 billion.
Government Policies
Economic policy has t:Lghtened somewhat under the Wilson
government. in the new buc'.ce M announced on 26 :arch, taxes
were increased S1.6 billion r.ore than expenditures. If
e
conoc ac6.1%ity remains depressed and unemplo~.,ent grows,
however, the government may issue a somewhat expansionary
to
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mini-budget. Although the Bank of England has cased
interest rates slightly 'in the past few weeks, they
remain higher than elsewhere in Europe, and the monetary
authorities are still trying to restrain the growth of
monetary aggregates.
NIP
I. c
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1973
GNP Constant Prices
5.9
GNP Price Deflator
8.0
Consumer Prices
10.6
Wholesale Prices
10.3
Money Supply. (ml)
4.1
Money Supply (n3)
28.9
Trade Balance
-5.8
Current Account
Balance
-3.6
lst Qtr 1st Fa15 2nd Half
1974 1974 1974 1974
Preliminary Estimated Estimated Estimated
-- -8.0 '9.0 -2.0
-- 14.0 9.0 11.0
19,7
41.1
-0.2
17.0
Billion US $
. --2.9 -6.0 -5.0 -11.0
-2.3 -S.0 -4.0 -9.0