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

General Economic Situation
Sustained growth of the world economy
In 1989, the seventh year of the current upswing,
the world economy continued to expand at a notable
pace. GNP growth in the OECD countries was
stronger than expected at approximately 3.5'16
though not as marked as in the previous year (+4.3%).
The rise in the number of employed persons was
maintained across a broad front. In the OECD region
another roughly 6 million jobs were created in 1989;
the unemployment rate declined from 7% to C. 6.5%.
On average, prices climbed by just under 5% (1988:
3.8%). Inflationary risks stem mainly from wage cost
pressure.
Expanding world trade
World trade expanded quickly in 1989; at 7 to8% in
real terms the growth was not much lower than in the
previous year. Here, the growing integration of Asia's
young industrial nations into the world economy was
a contributory factor. Thus, after strong growth in the
three previous years (by an average of 20%). the
foreign trade of Hong Kong, Singapore, South Korea
and Taiwan together improved again by about 10% in
real terms. The external economic imbalances of the
main industrial regions - the U.S.A., Japan and Europe
- continued to decrease in 1989.
Federal Republic of Germany:
strongest growth in the '80s
The upturn in the Federal Republic of Germany,
now underway since 1983, proceeded at an increased
Pace in 1989.The4%growth in real GNP was
the highest in ten years. The number of employed
persons rose by 344,000 to a new post-war high of
27.65 million. Despite the arrival of 721,000 East Germans
and other ethnic Germans in the Federal Republic
of Germany, the number of unemployed declined
by 204,000. The average annual inflation rate
climbed to 2.8%. For the first time since 1974, the
Federal budget (incl. social security) recorded a sur-
plus (DM 5.6 bn.).
Dynamic exports and capital spending
Exports and capital spending were the key factors
in the strong GNP growth of the Federal Republic of
Germany in 1989. Exports grew by 10.8% in real
terms; capital investment in machinery and equipment
climbed by9.1%, and in buildings by5.2%. However,
private consumption increased by only 1.6% in
real terms, whilst public consumption even declined
by 0.8%.
Newcomers ease bottlenecks on the labour market
The widespread shortage of suitable labour despite
persistent high unemployment was alleviated in
the Federal Republic in 1989 by the inflow of East
Germans and other ethnic Germans. Out of an estimated
450,000 newcomers seeking employment,
about 200,000 found jobs. The availability of this
group of people to take on vacant positions which
would otherwise not have been filled, or at least not
as quickly, facilitated higher overall production in
1989.
lncreasingly restrictive monetary policy
Reacting to the strong economic dynamism and
related fears of inflation, the Bundesbank further
tightened its monetary policy. Key interest rates were
increased in four Stages by a total of 2% percentage
points to 6% (discount rate) and 8% (Lombard rate).
There was a marked fall in the Pace of money supply
growth over the year. With an expansion rate of 4.7%
the monetary target of "approximately 5%" was attained.
One of the effects of the tighter Bundesbank
policy was the inversion of the interest rate structure
on the money and capital markets. At year's end,