EXPERT’S FORECAST OF N.Z. ECONOMIC TRENDS

Press, Volume XCI, Issue 27634, 15 April 1955, Page 7

EXPERT’S FORECAST OF N.Z. ECONOMIC TRENDS

“There is perhaps less confidence in the air now than there was a year ago,” says A.J2D., reviewing trade for 1954-55 in the April issue of the economic bulletin of the Canterbury Chamber of Commerce.

“Tiie marketing prospects of our primary produce are not as reassuring as they were and the financial situation is tight,” says the writer under a sub-heading, “1954-55—General View.” “This is likely to blind us to the undouted fact that 1954 was, like 1953, a year of sound prosperity, with trade at almost record levels. Trading profits, now starting to show on recent balance-sheets, verify this. “It is well to remind ourselves that we are still being borne along on a tide of prosperity without equal in our history. Further, the climate abroad is still distinctly inflationary, particularly in Britain: and the United States is emerging from a shallow recession, which had everybody fearing and guessing for some time. “But, here in New Zealand, we have yet to reach a secure freedom for our importing. And we may have to absorb into our economy the consequences of stability, of a state of affairs where prices Just do not go on going up and up. Business decisions become a little more difficult if they are not ’hedged’ with the automatic protections of rising prices. And business finance may yet become a little dearer if interest rates go up—the way the logic of the situation suggests they should go. “But, if we do find 1955 as a year in which belts have to be tightened by one small notch, it may also be a year of greater efficiency, as prices go to work more effectively as incentives and distributors than they have done since the war.”

After quoting statistics for overseas exchange transactions in the year 1954-55, A.J.B. says: *Ori the face of it, the overseas trade situation appears to have deteriorated seriously. The terms of trade are swinging against us a little, as primary produce prices weaken and import prices tend to edge upwards. We are borrowing abroad, and, at the same time, spending heavily on private imports. Is this foolish extravagance, the sort of behaviour which will pitchfork us back into import controls again, or even into a currency devaluation?

“The answer to this is that the country is passing through a readjusting phase which is fully justified, which has swung the trade figures against us, and which should, this

year, settle down to a satisfactory balance. Things are not as bad as they may appear. “In the first place, it is easy to exaggerate the weakness of our primary produce marketing situation. True, the long post-war honeymoon of rising prices is probably over, and there is a good deal of uncertainty about dairy produce sales. But the meat situation remains very fair, in spite of current problems about shipments and unduly heavy stocks in Britain, and wool looks firm. The total situation will not knock us off balance as it stands, although the threat of more inflation in Britain may harden import prices a little later in the year. “Again, overseas borrowing is far from indicating an improvident policy. The capital needs of this country fully justify borrowing from abroad, and the total interest bill on these debts is small enough to encourage this valuable method of increasing our productivity. We need the loans; we can use them productively in New Zealand, and we can readily foot the interest bills involved —in fact they will probably be self-financing. “That leaves the higher private imports still outstanding. To be sure, these have a threatening air, suggesting a spending spree at a time the country can ill afford it. But, behind the figures, a properly conceived trade policy is at work. After a decade and a half of exchange and import controls, an attempt is being made to liberalise imports. “The virtues of freer trade for efficient conduct of the economy need no emphasis here. But the transition to freedom inevitably tends to run down our sterling balances, and swell the import totals, as importers make use of their new opportunities. “But there is no reason to expect that the rate of importing will remain high, once an initial surge of restocking, with some market experimenting has played itself out. Provided speculation is not given its head by easy credit, all should be well. And credit is far from easy in New Zealand today. “So it should turn out that private imports, like the other items discussed, have an element of the *once-for-all’ about them too.” the writer says. The disturbingly irregular figures of 1954’s trade balances turn out to be misleading in the direction which is most reassuring, by ’giving a falsely gloomy picture.” ,