German 'economic miracle' cut in half by zero growth

By , Staff correspondent of The Christian Science Monitor

The lowest inflation in the industrialized West. The lowest unemployment. The largest share of world exports, with the world's second- largest share of high-technology exports. It sounds like Utopia, right?

Wrong, if the name of the country is West Germany, and the comparison is with the spectacular postwar "economic miracle." The growth rate is projected at zero or less for 1981, the oil-fueled current- accounts deficit was a record 28 billion marks (somewhat under $14 billion) last year, the mark is pushing the bottom of European Monetary System limits -- and the Mullers and Schmidts may therefore have to forgo some of their treasured vacations in the sun.

To be sure, the phenomenal growth of 10 percent per year in the 1950s and '60 s has ended by the '70s, with a matured economy and the first oil price rises. But the economy still chugged along at respectable 3 and 4 percent annual increases. Inflation and unemployment were consistently the lowest among major industrialized countries.

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In addition, West German sales of entire plants abroad, especially in OPEC lands -- along with the appreciation of the mark that kept dollar-priced oil at the same real cost of Germany -- meant that West Germany survived the early 1970 s oil shock handsomely.

This time around it is different. After the 1979 round of oil price rises, imported oil costs shot up 46 percent for 1980, even though conservation efforts brought oil consumption down 9 percent. This reflection of world economic problems coincided with a cylical downturn in the domestic economy.

The depreciated mark -- which fell more than 25 percent against the dollar in the past few months -- will make 1981 oil even more expensive. And to compound West Germany's problems the pubic deficit, even if it is much smaller than that of the US and slightly below the average for industrialized countries, has been shooting up so fast from its zero base in 1960 that a continuation at present rates would have all government revenues going into debt servicing by the mid-' 80s.

All this makes for a gloom that hardly encourages businessmen to invest more and pull the economy out of its recession very soon. A few months ago economic research institutes were projecting a 1 or 2 percent growth in 1981 after second-half recovery from the recession that began in the second quarter of 1980 and produced negative growth for the last nine months of that year. Now the forecasters are expecting zero growth or even a dip below zero for 1981.

The rate and timing of any recovery, specialists say, hang on two things especially: moderation in this springs's wage hikes and economic recovery in world markets.

West German labor -- now the most highly paid of any country other than Belgium and Sweden (1979 per-hour labor costs of 21.14 marks [$10.57], compared to 16.95 [$8.48] for the US and 21.77 [10.89] for Japan) -- has a reputation for responsibility. But the trade unions feel they have been the ones to be restrained for several years now; there is shop- floor pressure for more militance; and workers don't see why they should be the first to accept that lower standard of living that economists say is all but inevitable.

Nor are the unions made more conciliatory by the unemployment rate. According to Jan- uary's seasonally unadjusted figures, 1.3 million people or 5. 6 percent of the work force, was jobless. This rate is serious by anyone's yardstick.

Even if collective bargaining does lead to moderate hikes in line with the current 5.5 percent inflation (as compared with 8.4 percent in Japan and double-digit inflation in every other major Western economy), West Germany still faces the formidable task of jacking up its exports. For 25 years West Germany, almost uniquely in the world, had a current-accounts surplus and regarded this surplus as normal.

Suddenly in 1980 this was no longer the case. The 28 billion mark deficit reflected oil imports as well as the spending of all those West Germans who now travel abroad in greater numbers than citizens of any other country. (A few trial balloons have been lofted for currency limitations on this travel. By now , however, it would be political suicide for any government to try to take away West German's birthright of sunny Italian or Tunisian holidays.)

At this point economists hope, officially, the 1981 current-accounts deficit can be brought down to 20 billion marks (less than $10 billion). Unofficially they suggest 23 to 24 billion marks (somewhat under $11 to $12 billion) may be a more reasonable goal. There are numerous obstacles to such increased West German exports, however, including the general stall in the world economy and the specific slowdown in Mideast orders as sheikhs have reassessed Iran's too-rapid industrialization.

Linked with the problem of boosting exports is the value of the mark. Economists argue that the mark appreciated faster than even West Germany's solid economy and low inflation warranted in 1978 and 1979 -- and that a reverse exaggeration is evident in the mark drop to a three-year low. This drop makes West German exports more competitive in the long run -- but in the short run it magnifies the b urden of those price rises in imported oil.

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