Bloom Off the Boom

For a while, it almost seemed that West Germany's robust economy was immune from the crisis that is sweeping the industrial nations. Month after month, while soaring oil prices drove inflation and trade deficits skyward round the world, West Germany racked up one record surplus after another. Foreign reserves swelled, orders bulged, and the country's already low inflation rate (7.8%) actually began to decline. An enormous backlog of foreign orders, plus the magic of "Made in Germany," kept exports surging ahead.

But experts warned that it would not last, and they were right. Fearful of the impact of the world energy crisis on German jobs and industry, pfennig-pinching West Germans began saving instead of spending, undermining domestic demand and forcing the entire economy into a top-heavy dependence on foreign business.

Now, with customers in Europe and the U.S. planning Draconian budgets for next year, exports too have begun to soften, sending unemployment upward and the economy lurching toward recession. In three key areas, West Germany is already hurting:

AUTOMOBILES. Total production is down 25% from last year.

Despite industry predictions of an autumn turnaround, the slump is worsening, and at an alarming rate.

Says a top official at Ford of West Germany: "We are trying to be optimistic, but it is getting harder every day. No one knows where the bottom is."

CHEMICALS. When domestic demand evaporated last winter, factory output was freed for export.

From January to June, foreign sales rose by 50%, creating an illusory feeling of boom in the chemical industry.

But since July, exports have dropped by 9%, and further deterioration is expected in the next few months.

MACHINE GOODS. Foreign orders were strong through the spring for everything from typewriters to locomotives. But they are now off 9% from the summer peak and falling. The downturn is expected to worsen because economic forecasts for France, Germany's major customer for machine goods, are also rapidly darkening.

As exports have stagnated, unemployment has ballooned. Since September, the number of jobless has jumped a frightening 44%. The total count of people out of work (almost 800,000, or 3.5% of the labor force) is still small by U.S.

standards, but vivid memories of Nazi exploitation of the unemployed during the 1930s have made unemployment one of the nation's most sensitive subjects, and the outlook is growing more gloomy every day. Indeed, the government's five top economic advisers predict that unemployment will climb to 1 million or more by January or February; that would be the highest winter jobless total in 17 years. Equally worrisome is inflation, which is currently running at an annual rate of 7.1%.

Already, unsettling memories of the interwar years are surfacing. Television and newspapers daily show laid-ofF workers queuing up in ever-lengthening lines at federal unemployment windows for their weekly Arbeitslosengeld (unemployment) checks, which total 62.5% of take-home pay for one year. The heavily industrialized Ruhr Valley, blast furnace for Germany's heavy industry, has been especially hard hit. It has a jobless rate higher than the national average, and a volatile work force with large numbers of poorly educated foreign workers, or Gastarbeiter--Italian, Turkish, Yugoslav and other foreign workers who were invited into the country during the long era of German labor shortages.

New Law. Throughout the country, the Gastarbeiter are an especially vexing problem. The government is caught between the public's resentment that foreigners are taking jobs away from Germans and the fear of appearing xenophobic if it sends the foreigners home. No new Gastarbeiter have been admitted since November 1973. As the one-year contracts of those already in West Germany expire, unemployment among the country's foreign worker population (2.4 million) is rising rapidly. The government estimates that 200,000 foreigners are now in the country illegally, and has launched a campaign to send them packing. New legislation that is scheduled to go into effect next spring will provide maximum five-year jail sentences for anyone who hires foreign workers illegally.

Not surprisingly, Social Democratic Chancellor Helmut Schmidt is coming under intense pressure, both at home and from other member nations of the Common Market, to increase government spending before unemployment gets out of hand. Strong demand in West Germany is vital to the economies of its European neighbors; last year the country absorbed 52% of all exports from the other eight nations in the Common Market. But Schmidt is in a bind. Next year's budget already is $9.2 billion in the red, and the government cannot increase spending without creating more inflation. Germans seem undecided on which specter they fear more. A September public-opinion poll by the Allensbach Institute found that 58% of those questioned wanted Bonn to work toward lowering inflation. But an October poll by the Sample Institute showed exactly the same percentage wanting the government to take measures against unemployment before year's end.

Last week, just before he visited President Ford in Washington, Schmidt indicated a readiness to accept higher inflation in return for lower unemployment. He hinted that the government will embark on an expansionary economic policy as soon as this week's European summit in Paris is over. Details have not been released, but there is persistent speculation that the new policy will feature a federal booster shot of up to $1 billion to stimulate capital spending and spur employment. Much money reportedly will be spent in the hard-hit Rhineland-Ruhr Valley area, where important state elections are scheduled for next spring.

Unless the world economy picks up in 1975, there is extremely little that the government can do to head off recession. For example, exports account for 26% of the West German gross national product, a greater share than in any other major industrial country. In trying to weave between unemployment and inflation, West Germany may wind up, like its trading partners, with a severe case of both.

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