Bank Forecasts Tighter Credit

Press, Volume CV, Issue 31029, 7 April 1966, Page 7

Bank Forecasts Tighter Credit

(New Zealand Press Association) WELLINGTON, April 6. The rest of this year is likely to be characterised by very tight credit and by a fall in manufacturing output, the A.N.Z. Bank says in its quarterly survey on the New Zealand economy.

“There is a risk of further substantial price rises, particularly in the last half of the year, but the extent of these will depend on whether spending can be tailored to the reduced availability of goods,” the survey says. Business activity and spending remain too high by most standards, although the credit squeeze is making a real impact on liquidity. Credit and trade prospects for the rest of the year, at best are fair, and because of the balance of payments, early easing of restraint is unlikely, the bank says. “The low level of overseas reserves continues to dominate the economic scene. Any early build-up in reserves is unlikely, given the high levels of imports and other current spending overseas, and the unfavourable earning prospects for butter and, to a lesser extent, lamb exports,” says the survey. Assuming that Imports are ■ reduced soon it is probable : that overseas assets will be I held at workable, but low, levels throughout the year. Longer-term prospects suggest little alleviation, as it : will be necessary to increase • reserves to repay short-term ■fixed debt commitments and

to provide some margin against any major decline in export receipts. “The conclusion to be drawn from this outlook is the likelihood that the Government will maintain the credit squeeze through the June quarter and probably beyond. “More definitely, it also means that banking system liquidity will remain low and that banks’ lending policies will be at least cautious, if not restrictive, past the June quarter, irrespective of any possible change in Government credit policy.” The bank says that, although the downturn in business activity is likely to continue, it started from exceptionally high levels. It also notes that in spite of wideranging credit restrictions, there are still strong expansionary factors. “The now almost-traditional belief that election years are periods of expansion could be misplaced in 1966. Although it is serving to maintain optimism and should continue to do so, at least before the Budget. The level of investment already planned and approved should ensure that ’ the move to slower growth rates is gradual, rather than sharp and damaging.” Should credit restraint not have sufficient impact, the Government may consider itself forced to impose further direct controls, the bank says. “Not only would this be unwelcome, but more important, . it would be an inappropriate treatment of complex com- > mercial and manufacturing sectors, which are becoming i less and less susceptible to ■ direct administration. “There is no doubt that 1966 will test the efficiency of , economic policy-making. If 1 overseas reserves were to improve, the problem would re- > main as to when, and to what extent, to ease the credit 1 squeeze.” > Unfortunately, current re- > serves and prospects imply a much more difficult task for 1 the policy-makers, and mean . continued restraint and slow- - er growth rates and public > acceptance of this policy. Fortunately, this situation - does provide some advantag- , es, says the survey. Most im- , portant, more resources can » be channelled into the primary and export sectors to • maintain their investment r programmes.