ECONOMIC

1976. Only exports seemed to remain an expansionary force. Thus, considerableconcern arose about the ability of the German economy to move intoa sustained expansion.However, industrial production began to pick up again toward the end ofthe summer. Later in the year, order inflows, especially from domesticsources, appeared to strengthen and unemployment fell slightly. But businessintentions remained weak through the third quarter of 1976, accordingto surveys, and some part of the rise in domestic orders reflects subcontractingof export orders rather than a broad upturn of domestic investment.Monetary policy has been accommodating, and it appears that the targetfor monetary expansion set by the Bundesbank for 1976 will be exceeded. For1977, the monetary authorities have announced that their target for monetaryexpansion in terms of Central Bank money will be 8 percent, implying agrowth rate of 6*/ 2 percent from the last quarter of 1976 to the last quarterof 1977. In order to help ensure that the projected growth of gross nationalproduct (GNP) of 5 percent for 1977 over 1976 will materialize, the authoritieshave instituted a number of selective measures to increase labormobility and curtail unemployment, and a scheduled increase in value addedtax has been postponed. In addition, further measures to stimulate privateinvestment are being contemplated.Developments in Japan in certain respects appear to be similar to thosein Germany. The early phase of the recovery was sparked by fiscal stimulus,and activity picked up sharply toward the end of 1975 with a revival ofexport demand. In early 1976 the recovery appeared to broaden asprivate consumption demand rose rapidly and investment demand, thoughnot buoyant, registered its first significant increase in 2 years. Underlyinginflationary tendencies seemed to have moderated substantially, althoughprice indicators were rising at a somewhat faster pace than in 1975. Thefaster rise of consumer prices largely reflected reductions in the subsidy elementsof certain government services as well as other government pricedecisions. A regeneration of cost pressures did not appear to be a factor. Infact wage settlements, last year at an average 8% percent, were well belowpast trends and indicate that the moderation in price increases that occurredin the third quarter of 1976 may well continue. Furthermore the rate ofsaving in Japan, as in Germany, appears to have stabilized at levels aboveits long-run average, and consumption demand is consequently a lesserexpansionary factor than had been expected.The Japanese recovery seemed to come to a virtual halt during the summermonths. Industrial production fell toward the end of the summer, andthe growth in real GNP decelerated sharply from an annual rate of 8%percent during the first half of the year to somewhat less than 2 percent inthe third quarter of 1976. This slowdown reflected a decline in the volumeof exports from the very high levels of the first half of the year and a flatteningout in private investment demand. Finally, in Japan as in the United104