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Economic Outlook for 1948
By Dr. Donald D. Humphrey
Deputy Director, Economics Division, OMGUS
The past year was only a limited
success, economically; progress
was slow until the last quarter of the
year. Recovery was given a terrific
setback by the extremely severe
winter of last year which virtually
paralyzed many lines of industrial
activity. The second handicap was
the drought of last summer and early
fall which damaged food crops, cur-
tailed the output of electric power
urgently needed by industry, dis-
rupted water transport, and added to
the load of the already overburdened
railroads.
Despite these  severe  setbacks,
things are better than a year ago.
The rate of recovery during the last
quarter of the year has in many lines
been very promising.
The general level of industrial pro-
duction in the Combiined Zones during
October had surpassed the peak levels
attained in October 1946 by 12 per-
cent. Particularly encouraging was
the marked progress made toward
the end of the year in the two basic
industries upon which general re-
covery depends, namely, coal and
steel. Other important gains include
the increased output of all kinds of
fertilizer; sulphuric acid, essential for
chemical production; textile yarn and
fabrics; paper and pulp, and building
materials.
The basis for a real expansion of
German foreign trade was also laid.
At the beginning of the year, Bizonal
Germany had no organized trade re-
lations with outside countries and no
means of reestablishing commerce.
During 1947, trade agreements were
negotiated with 18 countries, in-
cluding all those bordering on
Germany. Bank accounts had been
opened in these countries and the
steps necessary for the reestablish-
ment of international commerce have
been taken. The Bizonal Area of
Germany has been opened up to
businessmen from other countries and
substantial progress has been made
toward breaking down the barriers to
trade and reestablishing trade rela-
tions.
Communications have been opened
with the outside world. A year ago,
German businessmen had no direct
contact with importers abroad; today
they can do business and negotiate
contracts by mail, cable and tele-
phone.
As a result, exports from the Bi-
zonal Area, which are the source of
her life-blood imports, have increased
by more than 50 percent during the
year, to about $225,000,000. While
this figure still falls short of the
$365,000,000 goal, export shipments
since  October   have   exceeded
$ 1,000,000 daily.
As to reparations, the permitted
level of industry has been drastically
revised and the scale of plants re-
movals put on a realistic basis. There
will remain in Bizonal Germany
sufficient plant capacity to provide
for sustained recovery for several
years, thus enabling Germany to be-
come self-supporting and to play a
role in the restoration of a healthy
economy for all Europe.
T URING TO THE FUTURE, an im-
provement about twice as great
in 1948 as in 1947 can be anticipated
throughout industry generally. This
would represent a further increase of
25 percent in industrial production.
Exports for 1948 should much more
than double the $225,000,000 exports
in 1947.
There will be a notable increase
in imports for industry. The United
States and Great Britain have been
paying for the food imports into
Germany and the proceeds of exports
are being spent to pay for imports of
industrial materials. Thus far, only
about $30,000,000 of such imports have
actually arrived, which is only a frac-
tion of the orders placed. This means
that in 1948 there will be a resumption
of imports of industrial materials on a
scale not known since the end of the
war.
In addition to the proceeds of ex-
ports which will be available to im-
port several hundred million dollars
worth of raw materials for the revival
of industry, the President of the United
States has recommended to the Con-
gress an aid program for 16 European
nations and the western zones of
Germany, a program, which is with-
out a precedent in history. Should
this program be enacted by the Con-
gress, it will make available to the
bizonal economy an even larger flow
of the materials needed for industrial
revival.
The prospects for improvement in
the food picture are not as good as
for the improvement in industry. Mili-
tary Government will attempt to
maintain the increased quantities of
imports but substantial improvement
in the distribution of rationed foods
is dependent upon greater indigenous
production and the more effective
collection and distribution of the food
which is produced.
This review of the salient fact-
ors indicates that 1948 will pro-
bably prove to be the turning point
in German recovery. In providing
machinery for the restoration of a
sound economy, the responsibility
will be in German hands. To that end,
the responsibilities and powers of the
Economic Council for the Bizonal
Zones will be strengthened in the not
too distant future.
The outlook at the beginning of
1948 is definitely more promising than
a year ago. Improvement in the basic
industries has laid the background;
for further industrial gains and rising,
exports are providing the means to4
pay for greatly increased raw mate-
rial imports.
13 JANUARY 194t
INFORMATION BULLETIN
This arbicle is adapted from
the radio address given by Dr.
Humphrey in the weekly series
of "Freedom versus Totalitari-
anism."
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