NATO COUNTRY ECONOMIC SUMMARIES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T01058R000202810001-3
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 16
• Document Creation Date: December 22, 2016
• Document Release Date: November 2, 2009
• Sequence Number: 1
• Publication Date: May 3, 1985
• Content Type: MEMO

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Memorandum for: THE RECORD
ZSI -st1e-
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 - Wm. H. George
1 - DDI
1 - NIO/WE
1 - OD/EURA
2 - Production Staff
4 IPM/CB
1 - WE File
1 - (Each country analyst)
EURA/WE
2t1ay85
EURA
Office of European Analysis
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I I
Central Intelligence Agency
3 MAY 1985
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 that you requested
in your memorandum of 10 April. We hope Secretary Weinberger finds
useful our contribution to the briefing material you are pulling
together for his attendance at the May NATO;ministrial meeting. If you
have any further questions or. if we can be of further assistance, please
Deputy Chief, Western Europe Division, on
Director
European Analysis
Attachment:
As stated.
CL BY
25X1
25X1
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BELGIUM-LUXEMBOURG: GENERAL ECONOMIC DATA
BELGIUM
Population (1984): 9.9 Million GDP (Purchaseri's Value)/Capita: $8,320
Total Output (Billion $US - 1984 Exch Rate) 1981 1982
1983
1984*
GDP (Purchaser's Value - Current Pri
ces) 63.0 69.1
72.5
78.1
GDP (Constant Prices - % Change by Y
ear) -1.2 0.7
0.5
1.8
Cost-of-Living Index (1980 = 100)
108 117
126
134
LUXEMBOURG
-
Population (1984):' 0.37 Million
GDP (Purchaser's Value)/Capita:
$12,700
Total Output (Billion $US - 1984 Exch Rate) 1981 1982
1983
1984*
GDP (Purchaser's Value - Current Prices) 3.8 4.5
4.7
5.0
GOP (Constant Prices - % Change by Year) 3.1 2.1
-0.4
1.1
Cost-of-Living Index (1980 = 100) 108 118
128
136 25X1
continued austerity measures and structural weaknesses will allow only slow progress again
this year. Real growth in 1985 probably will be about 2 percent, insufficient to prevent
a rise in the unemployment rate, which now stands at 14.1 percent. On the brighter side,
inflation has continued to slow, falling to 6.4 percent in 1984, and further improvement
is likely this year. 25X1
The principal objective of Prime Minister Martens's fiscal policy is to reduce the
budget deficit from 13 percent of GNP in 1983 to 7-8 percent in 1986. The government is
unlikely to meet this goal, however, despite recently-announced expenditure cuts of $422
million designed to return the 1985 deficit to its target level of 10.4 percent of GNP.
Further deficit reduction is doubtful because the government already has announced a
series of tax cuts beginning in 1986 -- although the"cuts are welcome news to supporters
facing election later this year.
virtually eliminate its merchandise trade deficit while reducing the current account
imbalance to one-sixth of its 1981 level.
account to approach balance in 1985.
Continued export growth could allow the current
TRADE AND PAYMENTS (Billion $US, BOP Basis)
1981
1982
1983
1984*
Exports of Goods
and Services
87.3
82.9
75.5
76.8
Imports of Goods
and Services
90.2
84.4
75.2
77.0
Balance of Goods
and Services
-2.9
-1.5
0.3
-0.2
Cur
rent Account B
alance -4.2
-2.7
-0.8
-0.6
Lon
g-Term Capital
-4.6
-3.7
-5.1
-5.5
Tot
al Reserves Mi
nus Gold (yearend) 5.0
3.9
4.7
4.6
*Estimated
The Belgian economy maintained its steady but unspectacular recovery in 1984, and
Exports have continued to grow -- up 5.6 percent in 1984 -- allowing Belgium to 25X1
25X1
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CANADA: GENERAL ECONOMIC DATA
Population (1984): 25.2 Million GDP (Purchaser's Value)/Capita: $13,910
Total Output (Billion $US - 1984 Exch Rate) 1981 1982 1983 1984*
GDP (Purchaser's Value - Current Prices)
GDP (Constant Prices - % Change by Year)
Cost-of-Living Index (1980 = 100)
271.4 286.7 310.8 342.2
3.2 4.5 3.2 4.7
112 125 132 138
25X1
Boosted by a $15 billion trade surplus with the US, the Canadian economy grew 4.7
percent in 1984. Growth this year will slow to about 3 percent, as increased business
investment only partially offsets a slowdown in consumer spending and net exports. As a
result, unemployment likely will stay around 11 percent in 1985. The Canadian dollar
depreciated 5.4 percent against the US dollar in 1984 -- the smallest decline of any major
currency -- and it is expected to appreciate slightly in 1985. Inflation was 4.4 percent
in 1984 and should decline to 3.8 percent this year. 25X1
The budget deficit grew from $21.5 to $26 billion in 1984. Although the Mulroney
government has made deficit reduction a top priority, the recognition that any drastic
cuts would stall the slowing recovery will limit its.actions. Consequently, new taxes or
expenditure cuts probably will not exceed $2-3 billion, and are likely to focus on
enhancing business confidence. Ottawa hopes these measures will lead to an increase in
employment and investment of sufficient magnitude to reduce the deficit further.
Canada ran a $16.4 billion trade surplus and a $1.5 billion current account 25X1
su p ur in 1984. The surge in net exports accounted for over half of GDP growth, and
Ottawa's concern about growing protectionism in the US will make trade liberalization a
key issue in 1985. Revised national energy policy will spur energy exports --
particularly oil and natural gas to the US -- and imports by perhaps 25 percent in 1985.
Continuing high unemployment and concerns by small Canadian firms of increased competition
from larger US rivals will be impediments to freer trade but Ottawa will continue
promoting an environment conducive to foreign investment. Although the trade surplus
should increase somewhat in 1985, the current account surplus is expected to fall to $400
million due to a growing services deficit.
TRADE AND PAYMENTS (Billion $US, BOP Basis)
1981
1982
1983'
1984*
Exports of Goods and Services
83.9
82.4
87.7
102.4
Imports of Goods and Services
90.3
81.4
87.0
101.8
Balance of Goods and Services
-6A
1.0
0.7
0.6
Current Account Balance
-5.0
2.1
1.3
1.5
Long-Term Capital
.6
4.7
-0.1
2.1
Total Reserves Minus Gold (yearend)
3.5
3.0
3.5
2.5
*Estimated
25X1
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DENMARK: GENERAL ECONOMIC DATA
Population (1984): 5.1 Million GDP (Purchaser's Value)/Capita: $10,760
Total Output (Billion $US - 1984 Exch Rate) 1981 1982 1983 1984*
GDP (Purchaser's Value - Current Prices) 38.3 43.4 48.1 54.9
GDP (Constant Prices - % Change by Year) -0.8 3.4 2.5 4.2
Cost-of-Living Index (1980 = 100) 112 123 132 140
Denmark's first major labor conflict in 12 years erupted in late March after 25X1
labor/management negotiations on a new wage contract became deadlocked. A government-
mandated strike settlement exacerbated the conflict, virtually paralyzing the nation
during the first few days of April. The settlement limits wage increases to a total of
about 4 percent over the next. two years and cuts the 40-hour week by one hour in January
1987.
terms are expected to help prolong the stronger economic trend that began in 1982. The
settlement buttresses the Schlueter government's economic game plan, which aims to promote
investment and exports_by holding down labor costs and inflation.
growth at 3 percent this year, down from 4.2 percent in 1984. Copenhagen remains
concerned about the large current account deficit, expecting only a slow reduction from
last year's $1.7 billion to 1.2 billion in 1986. Progress on the federal budget deficit
should be better. It reached 8 percent of GNP last year but will be half that by 1986,
according to the government. The official forecast calls for sharp reductions in
inflation but anticipates only limited progress on unemployment. Denmark's independent
council of economic advisors, encouraged by the prospect of low wage growth over.the next
two years, is more optimistic. The council believes the current unemployment rate of 9.5
percent will fall several percentage points.
TRADE AND PAYMENTS (Billion $US, BOP Basis)
1981
1982
1983
1984*
Exports of Goods
and Services
23.2
22.2
22.5
22.4
Imports of Goods
and Services
24.9
24.3
23.5
24.1
Balance of Goods
and Services
-1.7
-2.1
-1.0
-1.7
Current Account Balance
-1.9
-2.3
-1.2
-1.7
Long-Term Capital
1.3
2.4
2.5
1.9
Total Reserves Minus Gold (yearend)
2.5
2.3
3.6
3.0
*Estimated
Although a financial and psychological defeat for labor, the government-imposed 25X1
Taking the wage settlement into account, the government is estimating real GNP 25X1
25X1
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? I 25X1
FRANCE: GENERAL ECONOMIC DATA
Population (1984): 54.9 Million GDP (Purchaser's Value)/Capita:
$8,930
Total Output (Billion $US - 1984 Exch Rate)
1981 1982
1983
1984*
GDP (Purchaser's Value - Current Prices)
356.0 408.2
452.6
491.5
GDP (Constant Prices - % Change by Year)
0.2 2.0
1.0
1.5
Cost-of-Living Index (1980 = 100)
113 127
139
149
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
billion in 1983 -- was nearly eliminated in 1984 and a small surplus is expected in
1985. On a December-to-December basis, inflation fell below 7 percent last year and may
fall to 5.5 percent this year.. 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 1.5 percent this year, the same
increase recorded in 1984, while unemployment has risen to 10.5 percent and is not
expected to fall soon. 25X1
During the past year the Socialists have continued their bold effort to
restructure and modernize the economy by encouraging more flexibility in the labor market
and by diverting resources from consumption to investment. Disappointing its labor union
supporters, the government has authorized significant layoffs in mining, steel,
shipbuilding, and automobiles. It is also pressing nationalized firms to become more
efficient and profitable.
25X1
While Paris 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
to materialize under the best of circumstances. With growing political activity-due to
the 1986 Assembly election and the 1988 presidential contest, economic policy will be
vigorously debated, but the Socialists are not likely to reverse course this year.
TRADE AND PAYMENTS (Billion $US, BOP Basis)
1981
1982
1983
Exports of Goods and Services
168.8
153.8
145.4
Imports of Goods and Services
169.4
161.2
146.5
Balance of Goods and Services
-0.6
-7.5
-1.1
Current Account Balance
-4.8
-12.1
-4.4
Long-Term Capital
-8.9
1.2
9.4
Total Reserves Minus Gold (yearend)
22.3
16.5
19.8
1984*
150.0
148.0
2.0
0.0
5.0
22.1
25X1
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GREECE: GENERAL ECONOMIC DATA
Population (1984): 9.9 Million GDP (Purchaser's Value)/Capita: $3,320
Total Output (Billion $US - 1984 Exch Rate) 1981 1982 1983 1984*
GDP (Purchaser's Value - Current Prices) 18.1 22.5 27.0 32.9
GDP (Constant Prices - % Change by Year) -0.3 -0.1 0.2 2.2
Cost-of-Living Index (1980 = 100) 125 151 182 215
Prime Minister Papandreou has pursued generally expansionary policies, keeping
public spending high and granting large wage increases to revive an economy that stagnated
for three years before recovering to a 2.2-percent growth rate in 1984. He has increased
state intervention in the economy, taking over "ailing enterprises" to prevent a further
rise in unemployment -- which reached 10 percent in 1984. In addition, he has imposed
tighter price, credit and exchange controls. While inflation fell slightly to 18 percent
last year -- down from 21 percent in 1983 -- it remains approximately three times higher
than the average of Greece's EC partners. The public sector borrowing requirement as a
share of GNP rose to nearly 16 percent last year, one of the highest rates in the European
Community.
25X1
A deterioration in the balance of payments last year increases the possibility
that Greece may need to seek official assistance after 1985. The current account deficit
grew by 16 percent to $2.2 billion --.6.7 percent of GNP -- up from $1.9 billion in
1983. The trade deficit fell slightly, but invisibles earnings declined for the fourth
consecutive year -- mainly because of a sharp fall in shipping receipts, higher interest
payments on a growing foreign debt, and a drop in net EC subsidies. Total foreign debt is
now about $14.5 billion -- nearly double the 1979 level.
Without a significant change in economic policies, the outlook for the economy 25X1
remains poor. Such a change is unlikely in the short term with a national election
scheduled for June 2 and political tensions running high. Greece's balance of payments
prospects, therefore, are likely to worsen next year, with the current account deficit
reaching around $2.3 billion. The domestic economy is also likely to remain sluggish; we
believe GDP growth will fall back to 1.5-2.0 percent with unemployment edging up further
as private investment remains depressed. Inflation probably will stay in the 17-18
percent range, fueled by the large public sector deficit and the expansionary incomes
policy.
TRADE AND PAYMENTS (Billion $US, BOP Basis)
1981
1982
1983
1984*
Exports of Goods
and Services
4.8
4.2
4.1
4.4
Imports of Goods
and Services
11.5
10.1
9.5
9.8
Balance of Goods
and Services
-6.7
-5.9
-5.4
-5.4
Current Account Balance
-2.4
-1.9
-1.9
-2.2
Long-Term Capital
1.6
1.2
2.1
NA
Total Reserves Minus Gold (yearend)
1.0
0.9
0.9
1.0
25X1
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ICELAND: GENERAL ECONOMIC DATA
Population (1984): 0.24 million
GDP (Purchaser's Value)/Capita:
$8,790
Total Output (Billion $US - 1984 Exch Rate)
1981
1982
1983
1984*
GDP (Purchaser's Value - Current Prices)
0.7
1.0
1.0
2.1
GDP (Constant Prices - % Change by Year)
Cost-of-Living Index (1980 = .100)
1.6
151
-1.5
225
-5.5
418
2.725X1
553
output. This reflects a dramatic increase at the end of 1984 in the volume of the fish
catch -- which accounts for over 70 percent of export earnings and about 20 percent of
GDP. Imports also were unexpectedly high in 1984, however, pushing the current account
deficit to 4-5 percent of GDP. While the prolonged recession has ended, living standards
have dropped by 17-18 percent since 1981. Unemployment meanwhile has risen above 1
percent -- a high level by Icelandic standards -- and inflation has begun to accelerate.
The wage settlements of over 18 percent that resulted from a month-long strike in October,
and a 12-percent devaluation of the Krona in November, combined to push 1984 inflation to
about 20 percent; the 1985 rate may approach 35 percent. 25X1
Prospects for overall economic improvement in 1985 -- despite austerity efforts of
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. Even more important in the short
term is the government's foreign borrowing which is financing most of the budget
deficit. The growing foreign debt equalled 60 percent of GDP at the end of last year and
debt service costs were 24 percent of export earnings. 25X1
Over the longer term there is great concern about Iceland's ability to tackle the
structural readjustments needed to adapt the economy to a more competitive international
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
earnings -- as well as geothermal and hydroelectric power. These areas, however, along
with the construction sector, probably are the most vulnerable to government 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
1.09
Imports of Goods
and Services
1.36
1.31
1.15
1.20
Balance of Goods
and Services
-0.14
-0.26
-0.05
-0.11
Current Account Balance
-0.14
-0.26
-0.05
-0.11
Long-Term Capital
0.20
0.21
0.08
NA
Total Reserves Minus Gold (yearend)
0.23
0.15
0.15
0.13
Iceland's economy grew 2.7 percent in 1984, after two consecutive years of falling
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ITALY: GENERAL ECONOMIC DATA
Population (1984): 57.0 Million GDP (Purchaser's Value)/Capita: $6,110
Total Output (Billion $US - 1984 Exch Rate) 1981 1982 1983 1984
GDP (Purchaser's Value - Current Prices) 228.6 267.7 305.0 348.4
GDP (Constant Prices - % Change by Year) 0.2 -0.4 -1.2 2.6
Cost-of-Living Index (1980 = 100) 118 137 157 174 25X1
Rome's principal economic objectives for 1985 include limiting the inflation rate
to 7 percent, the current account deficit to about $1 billion, and the budget deficit to
14.8 percent of GDP, while still achieving a 2.5 percent increase in real GDP; only the
latter target is within sight. Economic growth should slow only slightly from last year's
2.6 percent rate, as export gains moderate. This relatively sluggish growth rate will
restrain import demand, but it will also raise the unemployment rate to about 10.6
percent, compared to 10.4 percent last year.
Reaching the other goals will be tougher. The five coalition partners, with an25X1
eye on local elections scheduled for 12 May, have tried to avoid alienating important
voting blocks by postponing much-needed measures -- especially pension reform -- to reduce
the budget deficit. As a result, the shortfall, which amounted to 15.9 percent of GDP
last year, is likely'tp exceed 16 percent this year. 25X1
Price increases, which averaged 8.6 percent in the first quarter of 1985, will
probably rise to about 9 percent for the year, due largely to the lack of an agreement on
new wage contracts and a revision of value added tax, rates. The inflation outlook could
worsen further if a Communist-sponsored referendum calling for a removal of last year's
cap on wage indexation is passed. Lifting the cap would probably add one to two
additional points to the inflation rate. 25X1
Rome will also fall short of its current account target. Export gains will slow
as Italy's high inflation rate erodes competitiveness, particularly in EC markets, and
exports to the US moderate with slower US growth. As a result, the trade deficit --
already running well ahead of last year's record pace -- probably will continue to
expand. With the balance on services and transfers remaining largely unchanged, the
current account deficit should reach about $3.5 billion.
Trade and Payments (Billion $US, BOP Basis)
1981
1982
1983
1984*
Exports of Goods
and Services
100`.5
98.9
97.5
97.9
Imports of Goods
and Services
109.9
105.4
98.0
102.1
Balance of Goods
and Services
-9.4
-6.5
-0.6
-4.2
Current Account Balance
-8.6
-5.7
0.6
-3.1
Long-Term Capital
8.5
5.1
-0.3
NA
Total Reserves Minus Gold (yearend)
20.1
14.1
20.1
20.8
25X1
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NETHERLANDS: GENERAL ECONOMIC DATA
Population (1984): 14.4 Million GDP (Purchaser's Value)/Capita: $8,510
Total Output (Billion $US-1984 Exch Rate) 1981 1982 1983 1984*
GDP (Purchaser's Value - Current Prices) - 110.0 114.6 117.4 122.5
GDP (Constant Prices - % Change by Year) -0.7 -2.0 0.8 1.7
Cost-of-Living Index (1980 = 100) 107 113 116 120
25X1
The Dutch economy grew by an estimated 1.5 percent in 1984, led by a rise in
stockbuilding and a strong export performance. Business investment is rising but private
consumption remains weak. Continued tight budgetary policies probably will limit growth
to slightly above 2 percent in 1985 with exports ands manufacturing investment leading the'
expansion. Unemployment has continued to rise -- to approximately 16 percent according to
the OECD definition or 17.9 percent according to the Dutch measure -- with little hope for
improvement. Inflation increased last year to around 3 percent, but likely will fall to
below 2 percent in 1985 because of continued moderation in labor costs and the expected
appreciation of the,guilder, which will hold down import prices. 25X1
1. 1
Despite increased political and social pressures, Finance Minister Ruding recently
urge continued fiscal discipline in order for the government to reach its goal of
reducing the budget deficit to 7.5 percent of national income (about 6 percent of GDP) by
1986. The Dutch have been only partially successful, in cutting the deficit over the past
few years because expenditure reductions have been offset by new outlays and delayed 25X1
implementation of reforms.
The current account surplus increased sharply to almost $5 billion in 1984 because
of a significant increase in merchandise exports -- especially energy exports --.in the
first half of the year. Export growth probably will; continue to outpace that of imports
contributing to a larger surplus on both 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
83.9
Imports of Goods
and Services
861.8
84.9
79.5
78.5
Balance of Goods
and Services
4,.4
3.1
4.6
5.4
Current Account Balance
2''.9
3.7
3.6
4.9
Long-Term Capital
-2.7
-3.4
-2.1
-1.9
Total Reserves Minus Gold (yearend)
9'.3
10.1
10.2
9.2
* Estimated
25X1
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NORWAY: GENERAL ECONOMIC DATA
Population (1984): 4.1 Million GDP (Purchaser's Value)/Capita: $13,000
Total Output (Billion $US - 1984 Exch Rate) 1981 1982 1983 1984*
GDP Purchaser's Value - Current Prices) 40.2 44.6 49.2 53.8
GDP (Constant Prices - % Change by Year) 0.8 -0.6 3.2 3.2
Cost-of-Living Index (1980 = 100) 114 127 137 146
Economic growth probably will fall below 2 percent in 1985 because of slower 25X1
expansion of the oil sector which now accounts for 17 percent of GDP; Industrial
production is forecast to increase about 2 percent, after being nearly stagnant since the
late 1970s -- because the world recession reduced 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 this 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 barring a further drop in oil prices.
Inflation fell from 8.5 percent in 1983 to about 6.2 percent in 1984 -- still 25X1
higher than major competitor countries. Meanwhile wage increases of over 7 percent and
the krone's continued appreciation against Norway's major trade partners have also hurt
Norwegian competitiveness. The government expects inflation to dip below 6 percent this
year, but the record suggests that it has faint hope of holding. wages to the 5 percent
target it has established. 25X1
The 1985 election year budget reflects the Conservative-led government's concern
over t e economy's major weakness -- a politically damaging unemployment rate that
averaged 3.9 percent in 1984. Planned tax reductions and job creation measures, however,
probably will not have a significant impact on unemployment because revenue from North Sea
oil and gas will produce an overall budget surplus of nearly $1 billion. Energy-taxes now
provide about one-fifth of budget revenues, enabling 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
3.5
Long-Term Capital
-0.7
0.3
-1.5
NA
Total Reserves Minus Gold (yearend)
6.3
6.9
6.6
9.4
*Estimated
25X1
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PORTUGAL: GENERAL ECONOMIC DATA
Population (1984): 10.0 Million GDP (Purchaser's Value)/Capita: $1,950
Total Output (Billion $US - 1984 Exch Rate) 1981
1982 1983 1984*
GDP (Purchaser's Value - Current Prices) 10.1
12.7 15.6 19.5
GDP (Constant Prices - % Change by Year) 1.8
3.0 -0.5 -1.6
Cost-of-Living Index (1980 = 100) 120
147 184 238
Portugal's recession deepened last year as the result of its IMF austerity 25X1
program. After declining 7 percent in 1983, domestic demand fell another 6.6 percent,
reflecting a dramatic 23-percent fall in investment and a 10-percent loss in real wages.
The contraction of domestic demand helped reduce imports $300 million and increase exports
$500 million, thus producing a sharp improvement in Portugal's current account deficit.
Inflation, however, rose to 29 percent due mainly to IMF-mandated price hikes for
government-subsidized goods and services.
IMF surveillance ended in February 1985, but the government envisages only a 25X1
slight easing of its economic policies. A sluggish recovery is likely with real GDP
growing only about 1`percent this year. Private consumption probably will be flat because
of an expected 2-percent decline in real wages. The' impaired financial condition of many
Portuguese companies and competition from the government for available credit will limit
investment growth. At the same time,,slower export expansion and rising import demand
will push the current account deficit deeper into the red, although probably to less than
$1 billion.
Lisbon is still negotiating with the World Bank on terms for restructuring public
sector companies. The government is unlikely to undertake a program until next year 25X1
because of political bickering and presidential elections this December. Meanwhile,
Lisbon faces the task of reforming its backward agricultural sector in order to reduce
balance-of-payments pressures after it enters the EC, which is scheduled to take place in
January 1986.
TRADE A
ND PAYMENTS (
Billion $US, BOP Basis)
1981
1982
1983
1984*
Expo
rts of Goods
and Services
6.3
5.8
6.3
7.1
Impo
rts of Goods
and Services
11.9
11.7
10.0
9.7
Bala
nce of Goods
and Services
-5.6
-5.9
-3.7
-2.6
Curr
ent Account B
alance
-2.8
-3.2
-1.7
-0.5
Long
-Term Capital
1.8
2.6
1.3
0.4
Tota
l Reserves Mi
nus Gold (yearend)
0.5
0.4
0.4
0.5
*Estimated
I 25X1
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SPAIN: GENERAL ECONOMIC DATA
Population (1984): 38.4 Million GDP (Purchaser's Value)/Capita: $4,120
Total Output (Billion $US - 1984 Exch Rate)
1981
1982
1983
1984 *
GDP (Purchaser's Value - Current Prices)
107.8
123.7
141.7
158.3
GDP (Constant Prices - % Change by Year)
0.2
1.2
2.3
2.5
Cost-of-Living Index (1980 = 100)
114
131
147
160
since 1977. Real exports -- up by more than 16 percent -- were the main driving force.
Private consumption weakened because of real wage losses and rising unemployment while
investment continued to fall due to high real labor costs. 25X1
Slack domestic demand held down imports and helped reduce inflation 3 percentage
points to 9 percent, but it also contributed to pushing the unemployment rate to 21.7
percent. Meanwhile, the export boom swung the current account from a deficit of $2.5
billion to a surplus of $2 billion.
slower growth in the industrial countries and an erosion of price competitiveness.
Spanish officials are consequently pinning their hopes of a sustained recovery on an
upturn in domestic demand. Madrid expects an easier monetary policy, legislative changes,
and tax cuts to stimulate investment and private consumption. Nevertheless, real GDP
growth will still be no better than 3 percent -- too slow to bring the jobless rate below
20 percent.
Minister Gonzalez's austerity program has inflicted on, his constituents, he should win
next year's elections because he faces weak opposition. Workers almost certainly will not
turn against the Socialists as long as the only alternative is the rightwing Popular
Alliance, which supports the general lines of Gonzalez's unpopular industrial
restructuring program.
TRADE AND PAYMENTS (Billion $US, BOP Basis)
1981
1982
1983
1984*
Exports of Goods
and Services
34.4
34.8
33.6
38.1
Imports of Goods
and Services
41.0
40.6
37.2
36.9
Balance of Goods
and Services
-6.6
-5.8
-3.6
1.2
Current Account Balance
-5.0 '
-4.1
-2.5
2.0
Long-Term Capital
4.3
1.8
3.1
3.3
Total Reserves Minus Gold (yearend)
10.8
7.9
7.4
12.0
*Estimated
25X1
Economic growth rose slightly last year to 2.5 percent, Spain's best performance
Export volume 'probably will expand less than'8 percent this year, reflecting 25X1
Despite the likely lack of progress on unemployment and the pain which Prime 25X1
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TURKEY: GENERAL ECONOMIC DATA
Population (1984): 50.2 Million GDP (Purchaser's Value)/Capita: $960
Total Output (Billion $US - 1984 Exch Rate)
1981
1982
1983
GDP (Purchaser's Value - Current Prices)
17.5
23.4
31.3
GDP (Constant Prices - % Change by Year)
4.7
4.3
3.8
Cost-of-Living Index (1980 = 100)
138
183
235
1984*
48.2
5.9
357
25X1
Prime Minister Ozal's program of economic liberalization and fiscal and monetary
austerity has shown mixed results after his first year and a half in office. He can point
to strong economic growth -- real GNP expanded by almost 6 percent in 1984, up from 3.8
percent in 1983 -- and progress in improving the balance of payments as achievements.
Ozal's failure to reduce inflation and unemployment,''however, is causing political
difficulties for him. Inflation soared to 52 percent last year, compared with 31 percent
in 1983. Part of this rise was the result of needed price increases for many state-
produced products and part is attributable to the loose monetary policies of the previous
military government. Nevertheless, Ozal's own monetary and fiscal policies have been less
austere than expected as the money supply grew nearly 50 percent in 1984 while the fiscal
deficit climbed to nearly 6 percent of GDP. Ozal also has made little or no progress
against unemployment, which is generally considered to be about 20 percent, although there
are no reliable figures.
The balance of payments improved last year as the current account deficit fell to
$1.4 billion, down from $1.8 billion in 1983. -Exports surged 25 percent -- to $7.4 25X1
billion -- as regular lira devaluations kept Turkish goods competitive in foreign
markets. Imports rose only 16 percent, despite a relaxation of many import restraints,
holding the trade deficit steady. Worker remittances rose over 20 percent to $1.9
billion, following two years of substantial declines. 25X1
percent, and we expect the current account deficit to continue narrowing -- perhaps to $1
billion. Unemployment, however, is likely to creep higher because of strong growth in the
labor force, while inflation will continue to run at about 45-50 percent. Debt service
costs will jump sharply this year -- Ankara's grace period on rescheduled foreign debt
essentially ended in 1984 -- and probably reach about 30 percent of current account
earnings. As a result, Turkey will continue to be dependent on foreign aid from the West
and new commercial loans.
TRADE AND PAYMENTS (Billion $US, BOP Basis)
1981
1982
1983
1984*
Exports of Goods and Services
4.7
5.7
5.9
7.4
Imports of Goods and Services
8.9
8.4
8.9
10.3
ices
Balance of Goods and Ser
-4.2
-2.7
-3.0
-2.9
*
Current Account Balance
-2.3
-0.9
-1.8
-1.4
Long-Term Capital
0.4
0.1
-0.6
NA
Total Reserves Minus Gold (yearend)
1.3
.0.9
1.3
1.3
*Estimated
**Before debt relief
The outlook for 1985 is mixed. GNP growth should remain strong at around 5
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UNITED KINGDOM: GENERAL ECONOMIC DATA
Population (1984): 56.4 Million GDP (Purchaser's Value)/Capita: $7,600
Total Output (Billion $US-1984 Exch Rate) 1981 1982 1983 1984*
GDP (Purchaser's Value - Current Prices) 339.3 370.1 402.2 428.30
GDP (Constant Prices - % Change by Year) -1.1 1.9 3.4 1.925X1
Cost-of-Living Index (1980 = 100) 112 122 127 133
Most forecasters estimate that the end of the coal miners' strike will account for
about one-third of the 3 percent growth rate forecast for the British economy this year.
Now in its fourth year, the recovery-has been spurred by exports, which have risen in
volume terms as a result of the relatively low value~of the pound. The pickup has not
been strong enough, however, to reduce unemployment -- now over 13 percent of the
workforce and likely to rise this year. Despite a commitment by Prime Minister Thatcher
to address this problem, tax reforms introduced in the budget -- intended to reduce the
cost of hiring low income workers -- are likely to take several years to generate new
jobs. The Thatcher government still contends that the key to maintaining long-term
economic growth is to keep inflation and interest rates low. 25X1
for annual growth of the money supply from 6-10 percent to 5-9 percent and announced
spending cuts to reduce the deficit from $10 billion; to $7.7 billion. Both of these
objectives illustrate continued commitment to controlling inflation, public spending, and
interest rates. London has had mixed'success so far;, with inflation expected to edge up
to more than 6 percent this year -- the highest level since 1982. Thatcher believes,
however, that reducing inflation to an annual rate of 3 percent within two or three years
is a "realistic target" and essential to maintaining~Britain's international
competitiveness. The Prime Minister also is pleased that interest rates -- boosted
sharply to 14 percent earlier this year to defend the pound -- are now coming down. 25X1
Britain's trade and current accounts were in, near balance in 1984, and they are
likely to remain so in 1985. Economic growth should generate steady demand for imports,
and exports should recover as a result of the lower 'value of the pound and the end of the
miners' strike.
TRADE AND PAYMENTS
(Billion $11c, _ BOP Basis)
1981
1982
1983
1984*
Exports of Goods and Services
157'.2
147.1
138.8
122.0
Imports of Goods and Services
138.2
133.6
131.0
121.5
Balance of Goods and Services
19.0
13.5
7.8
0.5
Current Account Balance
15.1
9.8
4.4
-0.2
Long-Term Capital
-18'.0
-15.1
-11.4
-21.5
Total Reserves Minus Gold (yearend)
15.2
12.4
11.3
9.4
*Estimated
In the national budget, unveiled in March, the Treasury trimmed the target range
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25X1
WEST GERMANY: GENERAL ECONOMIC DATA
Population (1984): 61.2 Million GDP (Purchaser's Value)/Capita: $10,030
Total Output (Billion $US - 1984 Exch Rate) 1981 1982 1983 1984
GDP (Purchaser's Value - Current Prices) 442.8 561.4 587.3
GDP (Constant Prices - % Change by Year) - -Q.3 -1.1 1.3
Cost-of-Living Index (1980 = 100) 106 112 116
614.0
2.6
118
25X1
We expect the West German expansion to continue this year at about 1984's moderate
2.6 percent pace. West German economic vitality, however, seems increasingly dependent on
the external sector. 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 again be the main source of growth in 1985, although
export volume will not match last year's 9-percent increase. 25X1
The domestic economy, by contrast, is moving on a slow track. Even increases in
equipment investment--- the strongest contributor to growth domestically -- are being
generated largely by'externally-oriented firms. Moreover, the flagging construction
industry, hit by a saturated housing market and the slowdown in public construction, is
sapping overall investment growth. Private consumption has remained weak due to slack
labor market conditions and is likely to continue lagging, even taking into account the
first installment of a modest tax cut in 1986. Meanwhile, Bonn's devotion to budget-
balancing has imposed austerity on public consumption and investment. 25X1
The rise in consumer prices this year should' remain close to 1984's 2.4 percent --
continuing evidence of Bonn's success in taming inflation. Unemployment remains the most
intractable problem; the 9.1-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 West
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
218
Imports of Goods and Services
213,.7
204.4
195.3
200
Balance of Goods and Services
6,.2
15.1
14.5
18
Current Account Balance
-5.7
3.4
4.0
6.2
Long-Term Capital
1.5
-6.7
-3.3
-4.7
Total Reserves Minus Gold (yearend)
431.7
44.8
42.7
40.1
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