ECONOMIC INTELLIGENCE WEEKLY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86T00608R000500140025-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 21
• Document Creation Date: December 9, 2016
• Document Release Date: March 19, 1999
• Sequence Number: 25
• Publication Date: June 25, 1975
• Content Type: REPORT

C~AO~R
2UOU/09H4': CIA-Ft~3P86T
~c~~nori~ic,,i~nte~~l,i;gence. Weekly ~ - 25. J
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No I~'orei~~i Disscm
Econorrriic Intelligence Weekly
s~~~e~
ER EIW 75-25
25 June 1975
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NATIONbL SECURITY INFORMATION
Unautlloriaed Disclosure Subject to (:rirninol Sanctions
Classified by 015J79
Exempt from generol declassification schedule
of E.O. 11652, exemption cato0ory:
4 SB(1), (21, and (~)
AutomoticallY doclnssifiod on:
Date Impossibly :v Determine
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N? 1%orei~n Dissr?ni
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Developed countries: Short-Term Growth Prospects . 3
. 10
. 13
USSR: Progress in S~,.ellite Communications 13
Note, Pt;blications of Interest
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The Firming Trend of Industrial Output Continued in April-May in Most of
the Major Economies. Production rose for the second consecutive month in Japan
in April, and a sharp jump in Italian ~,utput pushed its index above the October
1974 level. In most other countries, output was steady or slipped only slightly.
f West Germany, however, tentative data suggest a 2% drop in April, a major
factor in recent downward revisions in the German economic outlook.
While the decline in output may be bottoming out, the six major foreign
economies can expect little economic recovery in the second half, even if the United
States grows at the 5% ,annual rate predicted by the OECD. Such an increase would
probably add 0.6% at most to Big Six exports, boosting their aggregate demand
by a mere 0.1 %. Only Canadian experts and final demand would be materially
affected.
Although major foreign governments are beginning to recognize that recovery
will be long drawn out in the absence of additional stimulative measures, they
remain reluctant to act. Price and payments problems are still restraining
expansionary action in France, Canada, the United Kingdom, and Italy. Bonn will
not take additional measures early enough to have much effect in 1975.
Note: Comments and yuerics regarding the Economic lnJClfigence Weekly are welcomed. They may be directed
25X1 A to the O(fice of Economic Research, Code 143, Extension 7892.
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The Recession in Industrial Co~antries Is Cutting Heavily into exports of
Non-Oil LDCs. Sales of raw materials -- the mainstay of their exports -- and of
light manufactures such as textiles and electronics have plummeted because of
weak demand, particularly in the United States and Japan. South Korea and
Singapore reported 15% declines in first-quarter export volume from the previous
quarter while Taiwan's exports were off 6%. Non-oil LDC imports fell in early
1975, although less rapidly than exports. The trade deficit -- totaling $20 billion
last year -- has been widening rapidly.
Producer and Consumer Members of the International Tin Council Reached
a Compromise Last Week on Financing Buffer Stocks for the Next Five Years.
The new agreement, effective 1 July 19?6, sets compulsory buffer stock
contributions by producer countries at 20,000 tons (10% of annual world
consumption), the same as the present five-year agreement. If slack conditions
require further stockpiling, consumer members will be asked to finance an additional
20,000 tons. In the past, only France and tha Netherlands have made voluntary
contributions to the Huffer stocks. (Confidential)
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DEVELOPED COUNTRIES: SHORT-TERM GROWTH PROSPECTS
The six major foreign economics can expeci little economic recovery Through
the end of 1975. E~~cn if the US economy grows at an annual rate of 5'/~ (real
terms) in the second half, as predicted by the OECD Secretariat, the resultinb
rise in US imports will not be enough ta~ spar,: an upturn abroad. Lit7ation and
payments problems are still inhibiting gouernmrnt expansionary action in France,
Canada, the UniteU Kingdom, and Italy. Bonn and Tokyo also arc moving cautiously
despite foreign and domestic pressures to reflate.
Weak Turnaround in the second I-Ialf
We believe that economic activity in the Iiig Six will rise at an average annual
rate of 1-1 /2'%~ in the second half of 1975, after dcChlling at a 2-I /2'~~ rate in
the first half. Japan anJ trance should lead the group, with rates est Halted at
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Industrial output plungrd in the early 1: oaths of the year, while domestic
delnall(] apf~c~irs to have been flat. As a result, the excess inventories built up
last year probably were cut substantially. The production decline showed signs
of leveling out ili the second quarter, suggesting that the worst of the inventory
adjustment process had ended. If so, the inching up in final demand fe_ccast for
the second half of 1975 would be reflected in a .rild upturn in production.
Private C'Ol1S11/11J7flOll
Consumer spending during t;~e remainder of the year is unlikely to grow :any
faster than the 2'io annual rate estimated for the first half. Although real household
i~icomes arc rising as higher wage rates and unemplc ;~mcnt compensation more
than offset inflatiall and growing unemployment, consumers arc holding down their
spending because of uncertain job prospects. Savings rates at the margin appear
to be running at al)out 35% in Japan and 40'% in West Germany -- the two largest
foreign economies.
Consumer conlidencc probably will not improve much until unemployment
begins to d~.;cline. The jobless rate is now about two-thirds higher than a year
ago. The rise in employment expected in the second half probably will be
insufficient even to absorb all new entrants into the labor force.
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Government spending, source of one-fifth of aggregate demand in the Big Six,
also should continue to increase at about the same rate in the second half of
1975 as in the first. Some governments, have quietly boosted 25X6
purchases in recent months. Others have made small budgetary adjustments that
will add to purchases later this year. if government spending rises at the expected
rate of 5 ~, it ;dmost certainly will be the most dynamic COillpollent Oi deilland.
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Private Ln~eshncut
Private capital spending, which fell at a 6-1 /2;G, annual rate in the first hall,
probably will decline again in the second hall'. Because capacity uhllzatlon rates
are extremely low, government efforts to stimulate private investment by lowering
interest rates and providing tax incentives arc having little ei'fcct. Thc~ rli~rtinr.~ ;,,
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The F~~reigtt Catrrponent
We expect a slight deterioration in net foreign Berland in the second half.
Imports, after plunging 12-1/?7~ in the first half, 1;robably will show little change
in the months ahcau. Export volume, down 10`i%~ in January-Jnnc, is expected to
show a further small decline.
A 5~o growth rate in the United States wool:} in itself have little cf1'ect on
exports a11C1 CC0n01171C grOWth 111 Othel' Il1aJ0r dCVeloped C0tllltrlCS. LxpeflCI1CC dllring
the 1971 recovery indicates that US import volume vrould increase at a 19'%~ annual
rate in the second half. [?vcn t111S lI1CfC8Se - W}11C11 is unlikely because of changed
competitive relationships in the US market and other (actors -Would add only
about 0.C7~ to exports o1' the Big Six, boosting their aggregate demand by a mere
0.1'%~. Only Canadian exports and final demand wool.; be affected appreciably.
/~Ithough the Europeans and .lapanesc tend to exaggerate the direct effect
of US economic recovery on their domestic prospects, tentative. signs of a L?reaic
in the US recession arc doing little to improve their confidence. Foreign businessmen
are skeptical that a strong pickup in US demand is in the offing. Their willingness
to spend and invest will not get a lift until the US recovery clearly is well under
Way.
Current Policy Positions
Despite increasing evidence that recovery will be painfully slow withol,t
additional stimulative measures, major foreign governments remain reluctant to ac;.
n ._.
considerations still outweigh po ltical pressures s+cmming from high unemployment
rates.
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Realistically or tot, most governments appear to be waiting for others --
particularly the United States - io initiate expansionary measures that will prod
their recovery. The reaction to a rise in foreign demand, once perceived, would
vary.
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France: Waitiirg To 13e Led
Paris views the present Frcnclt slump as the unavoidable result of the
worldwide recession. Thus far, Ciscard has concentrated on cushioning those rf~fects
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Ot t11C (lowntut'n -- particularly unemployment among the you~Ig -that might cause
social unrest. 13ccause Pa: is is waiting to be led out of the slump L~y rccovcry
in West Germany and the United States, a major pcl~cv ai)ift is unlikely; further
palliatives may be introduced this fall.2
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The other three members of the I3ig Six -- which together account for only
30~% of output -have little latitude in stimulating domestic rccovcry on their own.
Serious inflation and payments constraints compel them to ]ct their donunant
partners take the Icad in retlation.
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Although Italy~s financial problems have cased since last year, the govcrtiment
views stinullative policies as risky because of the massive foreign debt. The newly
regained trade surplus could vanish quickly; capital flight has become a rencwe.l
threat sing, the COmtlltUllst and socialist parties gained substantially in regional
elections earlier this month. The Left's increased strength ultimately will force a
relaxation in Rome's conservative stance, yet few economic 1)olicy changes are likely
until the Moro government rearranges political alliances to accommodate the new
balance of power.
2. For an analysis of France's rnost recent policy actions, sec BR EIw 75-23, 11 Junc 1975.
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Later Recovery Trends
Oven if growth accelerates in the first halt of 1976, as seems likely, we believe
that recovery will be slower than from previous post-World War II recessions.
Underutilization of capacity and low profits will remain an extraordinary drag on
investment.
Tile foreig~~ sector also is uniikcly to lead these countries out of the recession.
The sharp upturn in government purd~ascs ur private consumer spending needed
to spark a swift recovery is unlikely to occur.
Governments will still be balancing conf~lictirg price and employment goals
in deciding on additional stimulative action late this year and early next. Although
price rises should continue to moderlte in the months ahead, most governments
fear that strong measures could result in a resurgence in inilatlon, particularly since
tlrms will try to improve profit margins once given the chance. Disappointing growth
in the second half of 1975 probably will tip the scales in favor of cautious additions
to government spending this winter.
A strong pickup in private consumer spending would depend heavily on a
reversal in psychology.
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Comparisons with Other Forecasts
Our current view of economic prospects for the second half' of 1975 is slightly
gloomier than the projection made in flpril. Although inventory cuts early this
year apparently were sharper than expected -thus worsening first-half results and
reaffirming our estimate of a mild upturn later this year - we now foresee a
continuing decline in investment instead of a constant level.
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USSR: PROGRESS IN SATELLITt ;,JMMUNICATIONS
1'he development oi' Soviet satellite communications -both domestic and
international - is picking up speed after a cautious beginning.
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Domestic Conatn~rnications
The Orbita network, the first domestic ne~work in the world, now reaches
58 Soviet cities, with 5-10 new stations being added each year. Orbita stations
receive television programs directly from Moscov~ via Molniya-2 satellites and
distribute the programs locally 1 C trouts each day. Moscow is pushing hard to
reach every Soviet citizen with educational, political, and entertainment programs.
International Communications
In the international arena, Intersputnik -the Communist counterpart to the
US-sponsored INTELSAT -- is now in limited operation, relaying communications
alld tClevlsl011 signals among Cuba, Czechoslovakia, and the USSR. But with only
nine members (the others arc Bulgaria, East Germany, I-Iungary, Poland, Romania,
and Mongolia), Intersputnik Is merely a regional system in contrast to the
90-member worldwide INTELSAT organization. Indeed, the USSR and Romania
arc building stations that will link up with the INTELSAT network for commercial
communications with the Wcst.
The USSR also is building two earth stations for use in the planned satellite
FIOTLINE link. When activated late this year or early next year, the new link
will improva communications between Moscow and Washington during crisis
situations.
Cost Considerations
We estimate that the USSR has spent at least $2 billion on its major domestic
and IlltCinational Comsat programs since 1965. Tllcsc ambitious programs have
outrun Soviet technology. Soviet satellites typically have much shorter operational
lifetimes and substantially smaller relay capacities than INTELSAT satellites.
Moreover, Soviet earth stations incorporate noisier receivers, still depend on vacuum
tubes, and are not so highly automated as INTELSAT stations.
Thy USSR nonetheless passed a major technological milestone when it
launched a CJiI1111Un1ci1t1onS satellite into gcostationary orbit in July 1974. [n the
next few years, gcostationary satellites are likely to replace some satellites now
operating in elliptical or highly eccentric orbits. Increasing use of gcostationary
satellites should substantially reduce the costs of maintaining and expanding Soviet
Comsat 1'acilitics because fewer arc needed to provide the same coverage and they
tend to last longer. (Confidential)?
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World Sugar Markel Softens
Depressed demand and pros- World Market Sugar Price'
pests for a record harvest in the so
crop year vegilllllllg 1 8cptember
have cut world sugar prices to 13
cents a pound f.o.b. Caribbean
po, ts--80~/~ below the record high
50
of last November and the lowest
Icvel since December 1973 Con-
sumo resistance to high sugar ~ IQ
prices
as well as the global reces- `?'~
,
Sion, has turned an expected 40
world market shortage into a sur-
plus; the Philippines and certain
other exporting countries that
withheld sugar in hope of a price
rebound are now stuck with ex- 30 . .
cess stocks. Expanded acreage and
return of normal weather in most
major producing countries arc ex-
pectcd to?boost world sugar pro-
dL1ct10Il ]II the 1975/76 crop year zo
to 81.5 million tons. Because of
lagging consumption, world
stocks will increase substantially
For the first tithe since 1971, prob-
ably keeping world market prices ~o
at about ] 0 cents for the remain- ~~~`!
der of 1975. The recent price dive ~fl
and rising production costs have
i
rekindled interest among export-
0 _ . _ .
lI1gCOUI1tr1CS 111 cooperative IpeaS- 1971 72 73 J F M A M J J A S O N 0':J F M A M J
197A 1975
ures to stabilize prices. (Unclass-
lfled) ? soa2Eta a 15 1. US cenh pcrpnunrl, C:nrGbcnn ports.
15
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acre
The Structure and Function of Multilateral Aid Institutions
(ER RP 75-17, June 1975, For Official Use Only)
This publication serves as a research reference on the structure of multilateral
aid agencies, the types of aid provided, and the amount of aid given less developed
countries in 1974.
U5SR: Prospects for Grain Production and Trade at Mid-June
(ER IB 75-4, June 1975, Confidential)
Weather during late April and May favored crop developments in the western
and eastern portions of the Soviet Union ti~hile reducing yields in the central
portion. We now estimate the 1975 grain crop at 215 million tons, 5 million tons
less than our April forecast. This publication uses wee, .ter da*.a through May and
collateral data available in mid-June to describe crop developments in the spring
and to discuss the likelihood of Soviet grain imports.
~ Copies of these publications may be ordered by calling Code 143, L'xtcnsion 7234. 25X1 A
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E~?1?T?MIC I.NI~IC.~47'?IZ.S
Prepared by
The Office of Economic Research
June 25, 1975
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The Ecorronric Indicators provide up-to-date information on changes
in the domestic and external economic activities of the major non-
communist developed countries. To the extent possible, the Ccononric
Indicators are updated from press ticker and Embassy reporting, so that
the results are made available to the reader weeks - or sometimes months -
before receipt of official statistical publications.
Comments and queries regarding the L'cononric Indicators are
welcomed. They may be directed to the Office of 25X1A
Economic Research, Code 143, Extension 7402 or 351-7402.
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