Prospects for higher profitability are inducing German companies to "shift capacity" to other countries, especially the United States, a high German official said here yesterday.
In an interview prior to an address to the International Herald Tribune forum on exchange rates, Karl Otto Poehl, vice president of the Bundesbank, said that this trend has been spurred by "turbulence" in foreign exchange markets that could make goods produced in Germany less competitive in world markets.
Poehl also said there has been a "big flow" of investment capital, measured in the hundreds of millions of dollars, from Germany into the U.S. stock and bond markets. He said the overall pattern of investment is a reversal of the flow of dollars to Europe in the 1960s, when U.S. currency was overvalued, and American companies were buying European plants and equities. "Now it's the other way around," Poehl said.
The German central banker said he is not critical of what is happening "because it's rather normal." But he noted that the willingness of German companies to buy plants here rather than expand in their own country "is one reason for the sluggish investment climate in West Germany."
Poehl said that high hourly labor costs in Germany, coupled with generous social benefits for workers, mean that "production in the United States is maybe 20 to 30 percent cheaper that in Germany."
He added that "practically all large (German) companies" are thinking of following the example set by Volkswagen in buying existing manufacturing facilities in the United States. Specifically, he mentioned that the great Siemens complex is thinking of acquiring an existing East Coast U.S. plant making generators, and that Thyssen and Bayer Chemical have similar plans.
Poehl would not say that the german government is worried by the trend; the official position is that there should be "open frontiers" for the inflow and outflow of investment capital. "But of course, there is a problem," he said.
He noted that the German companies blame the codetermination policy, which allows labor unions a major voice on German boards of directors, as well as bureaucratic regulations of the government for the investment trend abroaed. "But I believe the main reason is the exchange rate," Poehl said.
In his speech to the IHT forum, he quoted figures attributed to New York Federal Reserve Bank Chairman Paul Volcker, which estimates the U.S. after-tax profit on corporate turnover (sales) at 5 percent, more than double the 2 percent German rate.
In both his speech and interview, Poehl gave a candid and rather pessimistic view of prospects for german economic growth, suggesting that the government will be hard pressed to hit its 3.5 percent target this year. This may prove a troublesome issue at the economic summit in Bonn in mid-July.
He said there are limits to German growth "that shed doubt on a growth target, say, of 4,5 percent per annum for Germany."
He implied that a more realistic long-run goal for Germany might be in the range of 2.5 ro 3.5 percent, even though that might be exceeded temporarily toward the end of this year. Poehl observed that American pressure on Germany to increase its growth rate "is not so heavy. There is a growing understanding of our problems."
Poehl added that he thinks chances are good for exchange rate stability between the dollar and the German mark, especially because interest rate differentials between the U.S. and Germany have widened and because the Carter administration and the Federal Reserve appear to be more serious about fighting inflation.
On the other hand, Michael Clayton of Forex Research Ltd. said that the dollar's decline may not be over. Clayton said the U.S. trade deficit could reach $50 billion this year before gradually improving in 1979.
Another speaker at the session, Japanese Vice Minister Michiya Matsukawa, said that "the process of inter-nationalization of the yen will take some time, and the role of the yen as an international currency isnlikely to remain a rather modest one for the near future.