Decline Predicted In Rate Of Profits

Press, Volume CIII, Issue 30540, 8 September 1964, Page 6

Decline Predicted In Rate Of Profits

(New Zealand Press Association) WELLINGTON, September 7.

The rate of increase of company profits in this country would continue to decline in the current financial year, though profits would remain high, the New Zealand Institute of Economic Research predicted today in a report.

The institute, in the first of a series of quarterly predictions of national income and expenditure, expect the short - term profit movements to flatten out towards the end of this year and early in 1965.

In making this prediction, the institute recalled that profits had risen steeply (in comparison with the previous year) in 1963 but the rate of increase had slowed in the March quarter this year. Referring to this, and the expectation of a continuing decline in the rate of increase till the end of. 1964 or early

1965, the institute says: “This short-term cycle reflects the growth of business activity in 1963, the wool boom and subsequent tapering off of future increases on the assumption that export prices will not rise further and, in fact, may decline slightly.” “These shortterm trends are not very firmly based, and in view of the substantial increases suggested in the second half of 1963 and the first quarter of. 1964, there is the possibility that company incomes during this period have been over-estimated.” VALUE OF OUTPUT In the summary of economic prospects, the institute says that the increased value of output in New Zealand for the current financial year is likely to be about 6 per cent, compared with 10 per cent in the year ended March, 1964. “The main reason for this decline is that no further increase in prices of our exports is expected—indeed our expectation is that export and other overseas income will actually decline. “To some extent also, last year’s increase in output resulted from the higher level of employment, especially employment of part-time workers. With the economy now at full stretch, increased output from this source is no longer possible and we therefore expect the increase in .’"ihime of output to be smaller.”

The institute estimates that there will be a rise in the real volume of goods and services available of 4 per cent in the current financial year, compared with 8 per cent last year. RISING PRICES “Although there are. signs at present that rising trends in the economy are tapering off in a manner consistent with the more slowly rising real value of output, we doubt if the tapering off will be sufficient to prevent more rapidly rising prices and a worsening balance of; payments situation.” The value of retail trade would rise overall by 7 per cent in the current year and construction activity by 5 per cent, the institute predicts. In spite of slightly lower export receipts, it was expected that farmers’ incomes would be maintained at last year’s level as a result of the higher guaranteed prices being paid to dairy farmers and some withdrawal of wool. Company income, which last year rose by about 20 per cent, should see another rise this time, by about 9 per cent. In 1963-64, wage and salary payments rose by 7 per cent, of which 5 per cent was due to increased overtime and the greater labour force. In the current year, the institute forecast a similar increase to occur, though a greater proportion would be accounted for by higher wage rates.