RA files, lot 58 D 374, “Trade & Payments General—1954”
No. 219
Memorandum by Louis C.
Boochever of the Office of European Regional Affairs
to the Director of the Office (Moore)
Subject:
- Some Economic Trends in Western Europe.
Industrial Production
Industrial production in the OEEC area rose substantially in 1953 after having leveled off in 1952. The OEEC index (1950—100) reads as follows: [Page 394]
| 1938 | 82 |
| 1948 | 80 |
| 1949 | 90 |
| 1950 | 100 |
| 1951 | 109 |
| 1952 | 110 |
| 1953 | 116 |
In the fourth quarter of 1953 there was an especially strong rise in industrial production—the index reaching a peak of 128 in November. Production in the first four months of 1954 continued at the high levels of the previous quarter (av. 123) and far surpassed the level of the first four months of 1953.
The pattern, as among different branches of industry, in 1953 showed a leveling off in production of investment goods, accompanied by a marked recovery in the textile and chemical industries, and a continuing strong upward movement in the production of motor vehicles and cement. (1953 saw a boom in housing construction.)
In the early months of 1954, coal and steel production was at about the same level as in the comparable period of 1953; motor vehicle production showed signs of continuing to rise rapidly; electricity and cement production were well ahead of 1953; and textile production generally (though not wool yarn) were holding the gains made in the last quarter of 1953.
The growth of production in 1953 was most marked in Greece, Germany, Italy, and the Netherlands, although the production index in the U.K. was also up in 1953 to 106, compared with a 1952 figure of 100. Belgium and France showed some retrogression during the year. Austria, Denmark and Sweden made slight total gains, although production in both Austria and Sweden rose sharply in the fourth quarter of 1953. In general, the trends noticeable in 1953 seem to be continuing in the first quarter of 1954, with the U.K. index holding up well at the high levels achieved in the fourth quarter of 1953. The U.K. index for the first four months of 1954 averaged 113, compared with 106 for the whole of 1953.
Agricultural Production
Harvests were very good in most European countries in the 1953/54 crop year, and total agricultural production continued its upward movement. The OEEC index (pre-war average—100) reads: [Page 395]
| 1947/48 | 86 |
| 1948/49 | 97 |
| 1949/50 | 104 |
| 1950/51 | 110 |
| 1951/52 | 114 |
| 1952/53 | 117 |
| 1953/54 | 122 |
The good harvest, with resulting increased rural purchasing power, appears to have been an important element in supporting the high level of demand for industrial production during 1953.
Trade and Payments
There was a general expansion in Western Europe’s trade in 1953 reflecting the recovery in production and demand in Western Europe and the relaxation of import restrictions in the overseas sterling area and in Latin America. In the latter areas, a rise in exports permitted increased foreign purchases, which in turn stimulated both production and trade in Western Europe.
The trade balance of Western Europe also continued to improve during 1953. The monthly average trade balance for the OEEC area with the rest of the world is as follows: (millions of U.S. dollar equivalents)
| 1947 | $685 |
| 1948 | 642 |
| 1949 | 500 |
| 1950 | 367 |
| 1951 | 543 |
| 1952 | 418 |
| 1953 | 319 |
The trade balance with the U.S. and Canada also showed a marked improvement, owing both to a decline in the value of Europe’s imports and an increase in its exports. The trade deficit was reduced from $254 million (monthly) in 1952 to $126 in 1953.
Taking account of all “civilian” items in the balance of payments, Western Europe was almost exactly in balance with respect to gold and dollar transactions, a surplus in the sterling area offsetting a deficit on the continent. Western Europe’s gold reserves and dollar holdings increased, however, by about $2.5 billion during the year, with U.S. financial assistance and military purchases of [Page 396] goods and services each accounting for about one half of the increase.
In the first quarter of 1954 there is apparent some weakening in the volume of exports to the U.S. and Canada, compared with the previous quarter or with the first quarter of 1953, while imports from the U.S. have remained steady. The resulting moderate increase in the trade gap has been very small, however, in relation to Europe’s extraordinary dollar earnings, so that Europe continued to earn gold and dollars in the first quarter of 1954 at a rate of $2 billion annually.
The improvement in Europe’s external balance has reflected a marked improvement in Europe’s terms of trade in 1952 and 1953 and the increase in agricultural output which permitted some import saving, as well as the extraordinary U.S. expenditures and the revived demand from certain third areas.
Prospects
A recent study of economic conditions in Western Europe lists the following elements of strength sustaining the European economy: (a) the high level of U.S. extraordinary expenditures, which is still increasing; (b) the momentum of the housing boom; and (c) the backlog of orders for industrial and transportation equipment.
Some less favorable factors are cited as follows:
“Defense production in Europe has levelled off and is likely to decline. The order backlog is being reduced. Current trends in European economic policy are to reduce government subsidies for housing construction and public investments in industry and public utilities. There is a danger that this decline will not be compensated for by increased private investment if the confidence of European businessmen is shaken by the US recession and price and profit expectations decline.”
The ECE Economic Bulletin for Europe, Fourth Quarter 1953, while commenting on the favorable developments in automobile production, textiles, etc., notes a general weakness in the industries producing machinery and other capital goods, which has reflected itself in the European steel industry.
It also points out that considerable additions to steel capacity are coming into use, particularly as the result of heavy investment in continuous ship mills.
With respect to the trade and payments portents, the ECE calls attention to the need for new trade stimuli if Europe’s exports to overseas countries are to be increased, or perhaps even maintained. It speculates that the demand from this area has been influenced by a temporary building up of inventories. Also, if prices of primary products continue to weaken, there is likely to be a lagged [Page 397] response in a weakening demand for manufactured goods from the countries producing these products. In addition, the drop in volume of total U.S. imports (of 7% in the last quarter of 1953 compared with the corresponding quarter of the previous year) appears to be greater in the first quarter of 1954. Although Europe’s exports have so far suffered relatively lightly, the fourth quarter decline in Europe’s exports of metals and manufactures is considered an early reflection of the decline in American demand.
The ECE also, however, calls attention to the rise in gold and dollar reserves which has been taking place, and notes the influence of the extraordinary U.S. dollar outflows.