West Germany

The government's argument that domestic demand is buoyant and that output is rising at a 3 per cent rate was vindicated by figures, for the second quarter. After a weak first quarter (partly due to another severe winter), GNP bounced back strongly and the annual growth rate reached 3.3 per cent, higher than the government's target of 3 per cent for 1986. This rebound, together with above-target monetary growth explains why the German authorities continue to resist pressure from the US to cut interest rates. Despite the rapid volume growth of imports as demand picks up, the fall in their DM price means that the trade surplus is continuing to grow. The current account surplus of DM40.5bn for the first seven months of the year is more than double that in the equivalent period last year.