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GERMAN MEDIUM-TERM MONEY SUPPLY GROWTH SHOULD BE 7.5 PERCENT

 GERMAN MEDIUM-TERM MONEY SUPPLY GROWTH SHOULD BE 7.5 PERCENT
 FRANKFURT, Germany, Oct. 5 /PRNewswire/ -- The Bundesbank's target range of 3-6 percent for German money supply growth is too low, writes Deutsche Bank Research in its most recent edition of "Focus: Germany." Given widely changed economic fundamentals, the institute argues that the nation's money supply will need to expand by approximately 7.5 percent if Germany is to be in a position to exploit the economy's increased growth potential.
 DB Research cites three factors which support a revision of the target range for M3: Growth of production potential in Germany is accelerating, price increases in eastern Germany are likely to remain high, and demand for the DM for financial transactions and other areas not captured in official GNP statistics is growing.
 One key indicator of stronger growth in production potential, according to DB Research, is Germany's investment ratio. With the ratio running at 12.7 percent over the last five years, compared to 11.5 percent in the 1970s and early 1980s, higher investment has led to larger and younger capital stock, boosting Germany's growth potential. At the same time, the labor force -- another factor of higher production potential -- has been expanding even faster, by 1.5 percent annually.
 DB Research concludes that the stronger annual increase in capital and labor supply will now cause west German production potential to grow at a rate of 3 percent, in contrast to roughly 2 percent recorded prior to 1987. Factoring in eastern Germany, the institute estimates that production potential for the whole of Germany is now growing at an increased rate of 3.5 percent and will continue to do so until the mid-1990s.
 In addition to these factors amounting to 3.5 percent real growth, the 2 percent rate of "inevitable" inflation must be considered when projecting the growth of Germany's monetary aggregate M3. In eastern Germany, the elimination of rent controls and price subsidies is expected to push the region's inflation rate to about 10 percent annually. DB Research estimates that the east German price rise alone will require a further one percent increase in the money supply.
 Finally, DB Research argues that demand for the DM will continue to outpace the growth of nominal national product. Between 1970 and 1990, German M3 expanded by 16 percent more than nominal GNP. DB Research attributes such growth in demand for the DM to the overproportionately increasing shadow economy, the strongly growing volume of financial transactions and the enlargement of the area where the DM is used as currency, particularly in eastern Europe.
 For a copy of the complete text, contact Ute DeFarlo, TransAtlantic Futures, Inc., Washington, phone: 202-462-1222; fax: 202-462-1229.
 -0- 10/5/92
 /CONTACT: Norbert Walter of Deutsche Bank Research, Frankfurt, 011-49-69-71007-310/ CO: Deutsche Bank Research ST: IN: FIN SU:


MH -- DC012 -- 6575 10/05/92 12:10 EDT
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Date:Oct 5, 1992
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