THE SIX MAJOR FOREIGN COUNTRIES:* ECONOMIC PROBLEMS AND PROSPECTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R002000010010-4
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 5
• Document Creation Date: December 12, 2016
• Document Release Date: September 6, 2000
• Sequence Number: 10
• Publication Date: November 20, 1974
• Content Type: REPORT

0L; R S 6 V ec or Release p1 l?~ CIA-R 5 8 ( pQQ~ 0010 V R o N R i Y', ,, N 0 V.
CONOfHY C R(JB AND'' PROSPCTS. UN.L'lpup :.~ ? ~ ~ 01* ` 0 : ~ ~1`
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20 November 1974
SUBJECT: The Six Major Foreign Countries:*
Economic Problems and Prospects
Key Points
? The world's major economies have gone into
a pronounced slump in 1974.
? The outlook for economic growth through 1975
is dismal; GNP will grow an average of only
112% in the current half year and do little
better next year.
? Industrial output has weakened progressively this
year and will remain in the doldrums in 1975.
? The combined number of unemployed in the six
major foreign countries has increased by 25%
over last year, -while unit la or costs have
mounted rapidly.
? Inflation will decelerate over the next 'ear
or so but remain extremely hiq by normal stan-
dards.
? The current account balances of the six major
foreign countries should show a small improve-
ment during 1975 over the dismal record of 1974.
* West Germany, France, the United Kingdom, Italy, Japan,
and Canada.
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THE DETAILS
1. The word's major developed countries have just gone through
one of the sharpest upswings and subse ucnt decelerations ingrowth
ever experienced. Instead of the "soft landing" that had been hoped
for, the real annual growth rate for the six major foreign economies
plunged from 9 in the first half of 1973 to a negative 0.9% in the
same period this year. The sharp deceleration resulted from a
confluence of forces: a normal cyclical downturn, the simultaneous
adoption of more restrictive policies, and the contractionary impact
of the oil crisis.
2. The outlook for economic growth in the major foreign
industrial economies through 1975 is dismal, but a 1930s-type
depression is unlikely. GNP will grow at an annual rate of only
1 1/2% in the current half-year. Growth in the first half of next
year will be little better, and a further slowdown may well occur
after mid-1975 if expansionary measures are not adopted early in the
year. Several factors are contributing to the gloomier outlook now
forecast by both OECD and OER for next year. Potential production
cuts due to drawdowns on large inventories, the additional contractionary
Impact of further oil price hikes, and a slowdown in world trade
volume have affected growth prospects in most countries. In addition:
? The West German government has continued to postpone a
shift to more.expansionary policies, despite a more
pronounced weakening in net foreign demand than earlier
expected, rising unemployment, and a continued investment
slump.
? The outlook for France,. still relatively bright, has been
dampened by slackening consumer demand, scaled-down plans
for industrial expansion, strikes, and a slowdown in
export volume.
? Growth prospects for Canada have been dimmed by a sharp
drop in US demand.
b Expectations for Japanese growth ave been dimmed by
1 an inventory overhang, weak consumer demand, and continued
tight economic policies.
? The outlooks for Italy and the United Kingdom, already
bleak, have been further clouded by labor difficulties.
3. Industrial output in the six major foreign countries has
been weaken' progressively this year. By August, their combined
monthly output had fallen below the year-earlier level. The year-
to-year drop, which is still continuing, was led by the two largest
economics; Japan's output is off by 7% and Wait Germany's '?y 5;.
Production almos cer al7nTy" wi remain in e'cd=5 fums 'weir 1i to
1975.
FOR Co ICiAL USE OILY
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? Consumer demand will weaken further as unemployment
edges up.
? Business investment will lose strength with the shrinking
of profits.
? Industrial exports already are being hit by the worldwide
economic slowdown.
y close to $2 billion while West Germany's large surplus will be cut by
about J3 billion. Japan, which has experienced a rapid turnaround in its
trade accounts, is likely to show only a small deficit of next year
compared with $5 1/2 billion this year. The current account deficits of
France, the United Kingdom, and Italy will each run in the neighborhood
of 66 billion to $7 billion, down slightly from last year.
Declinin., exports to developing countries will be offset by expanding
sales to oil-producing nations. Canada's deficit is expected to increase
goods is considered likely. Softening demand should also pull down
prices for industrial raw materials. Shortfalls in production of
food and other agricultural goods will prove troublesome, however, as
will spiraling wage costs. All the major countries except West
Germany. will continue to suffer from double-diait inflation at least
through 1975. Price rises in Italy and the United Kingdom will remain
particularly virulent, mainly because large wage increases will add
to cost pressures.
6. The current account deficits of the big six foreign countries
will total about $17 billion next year following a combined deficit of
about $21 billion this year. The deficit for the OECD as a whole will
run about the same as this year -- $40 billion. Important shifts in the
deficits of individual countries and in the direction of trade will occur.
? Swollen inventories will delay the impact of a switch to
more expansionary policies.
4. The combined number of unemployed in the six major countries
has increased by 25' over the last year. The worsening has been most
severe in West Germany, where the unemployment rate has jumped from a
normal 1% of the work force to 3.8% in October 1974. In some countries,
government measures are being taken to lessen the impact on workers.
Paris is providing nearly full take-home pay for its unemployed for up
to one year; Tokyo is giving "paid holidays" to many of its underemployed
workers; West Germany has severely restricted the hiring of foreign
workers. Unit labor costs have mounted rapidly, particularly in Japan,
where they are up some 30%. Short-time workers have more than doubled
in West Germany and France. Depressed output will keep unemployment
and labor costs high well into 1975.
5. Both OECD and OER are projecting some deceleration in inflation
over the next year or so. With demand depressed and inventories
apparently quite high, a slowdown in price rises for selected manufactured
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 Approve -RDP8
'E`i0'iANDUM FOR:
~? NIO/Economics
STATINTL
Attached is the information
requested for the Director.
Deputy Director
Office of Economic Research
20 November 1974
(DATE)
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T00875R002000010010-4
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