Deutsche Bank 1 - Historische Gesellschaft der Deutschen Bank e.V.

Report of the Board of Managing Directors
Cyclical downswing Growth falls to almost zero
In 1974 the economic clirnate in the Federal Republic
of Germany cooled down steadily. Persistent cost infla-
tion and the stabilisation measures needed to combat it,
were rnajor factors behind this development. In addition,
there were the domestic and world econornic difficulties
resulting frorn the extremely sharp increase in the price
of oil. At the beginning of the year, the econorny still
seemed to be heading towards recovery after the Feder-
al Government had abolished the Special Investment
Tax and lifted the restrictions on depreciation in Decem-
ber 1973. However, by spring, the increase in dornestic
demand for capital goods had already proved to be a
flash in the Pan.
Frorn the middle of the year, econornic activity dec-
lined more and rnore rapidly. Companies' business pro-
spects deteriorated frorn rnonth to rnonth. The normal
seasonal recovery after the surnrner holidays did not
materialise. In autumn, there was also a visible slacken-
ing in the irnpetus from foreign dernand. By the turn of
the year, there was a recession, above alt in the industri-
al sector. Unemployment was rising at a faster pace. At
the end of the year, the nurnber of unernployed came
close to one million; at the Same time, the number of
workers on short-time exceeded the 700,000 mark and
the nurnber of foreign workers fell by roughly 10%. In
January 1975, the number of unemployed rose to 1.15
rnillion, the nurnber of workers on short-time to 900,600.
The first modest successes in the fight against infla-
tionary tendencies, which received additional rnornen-
tum frorn the oil price rise, appeared in the course of the
year. To avoid jeopardising these successes, the Federal
Government accepted the fact of an increasingly reces-
sive economy, in spite of nurnerous recornrnendations
favouring a different course. In Decernber, however, the
Government decided to irnplernent a cornprehensive
Programme to stirnulate econornic activity, within the
scope of which DM 8-10 bn. are to be spent.
Without giving up its target of stability, the Govern-
rnent again directed the main ernphasis of its economic
policy rnore strongly towards maintaining the nurnber of
jobs. A revival of investrnent activity was seen to be the
decisive task of cyclical policy.
In 1974, for the first time ever, GNP came close to DM
1 trillion. It thus rose by a nominal 7%. cornpared with
11.5% in the previous year. However, this growth was
almost totally due to price inflation. In real terrns, nation-
al product increased by no more than 0.5%. By contrast,
real growth in 1973 had arnounted to 5.3%.
lndustry had to accept a 1.5% decline in produc-
tion. This process of contraction was compensated only
by the growth in the Services sector. All the signs of a
"split cyclical trend" in the econorny persisted into au-
tumn. Sectors with a high proportion of foreign sales,
such as chernicals or steel production, fared rnuch rnore
favourably than sectors particularly active on the do-
rnestic rnarket. The automotive industry, with its strong
emphasis on exports, was an irnportant exception. Like
the construction industry, it was particularly affected,
both cyclically and structurally. As a result, the indus-
tries linked with these branches were also drawn into
the downtrend. In the construction industry alone, over
200,000 jobs were lost.
Then, in the last months of the year, demand also de-
clined sharply in those sectors in which business had
been good until then, without any particular irnpairrnent
of the favourable annual results of the companies con-
cerned.
Price inflation curbed
In 1974, by virtue of the policy consistently pursued by
the Bundesbank, a further acceleration in the decline of
the value of rnoney was successfully avoided. At the be-
ginning of the year, there was still a danger that
inflation, stirnulated by the oil price rise, might reach, or
even exceed, the 10% mark.
From spring, the annual rate of increase in the cost of
living remained steady at about 7%. However, this initial
success achieved by stability policy did not yet appear
at all secure due to the persistence of inflationary factors
on the cost side, particularly in the wages and salaries
area. Initially, the Bundesbank's restrictive course had
more or less no influence on the wage agreernents con-
cluded between the tariff Partners. Wage costs per unit
of production continued to rise rapidly and, in the fourth
quarter, were 10% above the corresponding level in the
previous year. Not until the end of the year did the social