Increased Export Receipts Forecast; Warning Added

Press, Volume CVIII, Issue 31726, 9 July 1968, Page 10

Increased Export Receipts Forecast; Warning Added

An increase in export receipts of 5 per cent to sBBsm, most of it being accounted for by more exports of forest products, manufactured and miscellaneous goods, is forecast by the Monetary and Economic Council in a report released yesterday; but the council adds a caution.

“The emergence of a current account surplus should not be regarded as, in itself, justifying any general relaxation of present restraints on expenditure in the economy, and indeed there is little room for expansionary measures of a particular nature over and above what has already been announced by the Government,” the council says.

It does not consider that there is any need, especially in relation to New Zealand’s external economic prospects, for additional restraints on the economy; but it repeats earlier advice that there should be complete abolition of import licensing on manufacturing materials.

By June 30 there was likely to be a surplus of more than s3om in New Zealand’s overseas exchange transactions current account, the council says. This compared with a deficit of sl32m for the previous June year. The dramatic improvement had resulted primarily from a sharp contraction in import payments and an expansion of export receipts, although a fail in net invisible payments had contributed. Although export receipts from dairy products and wool fell, this was more than compensated for by the growth income from meat, forest products and miscellaneous goods, including manufactures. The decline in import payments was a direct result of restraints in import spending applied in 1967, the council continues. These caused manufacturing and building activity to fall substantially. It seemed likely, however, that some of the reduction could be attributed to postponement of imports of capital equipment and, especially over the last six months, the drawing down of stocks. The actual usage of imported goods and materials was probably higher than the statistics suggested. Stock reductions and deferment of capital equipment replacements could not be continued indefinitely. Another important factor had been that the Government had kept its spending in the last 12 months to an increase of less than 2 per cent on the previous year. Wool Stocks

Of the year ahead, the council says export income from wool was expected to rise by about s2om. Part of this represented realisation of stocks held by the Wool Commission.

A small increase in meat receipts was forecast, but dairy produce earnings were likely to fall because of increasingly difficult problems in external markets. Until international action for dealing with surpluses was agreed upon and in effective operation the outlook for dairy exports would remain unfavourable. Estimates indicated that $635m was likely to be available for private impoil payments without incurring a current account deficit; but there were several factors to be considered in estimating the actual volume of imports, which was a crucial element

|in determining the level of employment. I Government expenditure I was likely to be at least 4 per cent above last year, the council continues, and the Government had also taken a number of steps to stimulate activity in some sectors of the economy. Export receipts were continuing to rise, and an upward adjustment in wage payments could be expected in the normal course of negotiating awards, notwithstanding the Arbitration Court’s decision not to grant a general wage order. “An expansion of spending from these.causes will tend to raise the demand for imports and hence have a favourable effect on employment, but also tend to create a balance of payments deficit,” the report says. Devaluation “Of much greater significance in determining import volumes, however, both for the next 12 months and for the longer term, is the extent to which devaluation, by changing relative prices, will have reduced the economy's import demands.” The decline in incomes was likely to have produced a relative change in spending away from goods and services with a high import content to those with a lower import content—for example from consumer durables and overseas holidays to foodstuffs and domestic travel. But it was a volatile factor, and its effects could be reversed as soon as incomes rose to any extent.

The price effects of devaluation on the pattern of spending were likely to be more permanent. A given volume of imports would be able to sustain a higher level of employment and economic activity. In the longer term this was the kind of adjustment New Zealand must make if it was to live more or less within current overseas earnings while maintaining full employment and an adequate rate of growth. Concern for the level of economic activity in the next 12 months should not be allowed to obscure urgent longer-term objectives of bringing about structural changes essential to enable full employment with external balance and satisfactory growth. All items of manufacturing materials should be freed from import as quickly as possible, the council says. Items released so far seemed to be neither adequate nor relevant to the central task of achieving the needed freedom and adaptability of production. Rather, they appeared to consist merely of items that could be released without any repercussions.

Imported raw materials and components that competed with a local industry posed a problem, but the council thinks it is possible to provide quick decisions on the levels of additional tariff protection such an industry should be granted. The risks of taking action

to complete the first stage of freeing all manufacturing material, from import licensing were relatively minor compared with the longerterm national penalties of moving too cautiously, the report says. Unemployment Discussing unemployment, the council says it should be only a temporary phase while adjustments are made in the pattern of production of the economy. It could be a persistent source of trouble if the changes were not encouraged. “Positive and continuing measures other than inflation must now be developed to deal with seasonal unemployment, lack of skills, obsolete skills and the bringing of people and expanding jobs together,” the report continues.

Only a beginning appeared to have been made on the council’s previous recommendation that training and retraining programmes should be instituted and greater priority is urged.

In its conditions for resumption of growth the council says a premature expansion of internal spending encouraged in particular by relaxation of existing fiscal and monetary policies could damage the adjustment processes taking place. “Nor should we sit back in the hope that trading conditions for our existing export products will suddenly improve and relieve us from the painful necessity of taking those steps which are essential to the achievement of a more soundly based economy,” the report adds. “Those who are impatient about the current level of unemployment should be joining with the council in urging firm and positive action to secure the structural changes to the economy which are necessary if full employment is to be sustained and if economic growth is to be resumed.”