Lower production growth forecast

Press, Volume CXI, Issue 32498, 7 January 1971, Page 2

Lower production growth forecast

(New Zealand Press Association)

WELLINGTON, January 6.

A s9om deficit in New Zealand’s balance of payments, reduced inflation but also reduced growth in production—this is the forecast for the coming year, according to the Institute of Economic Research.

In its latest issue of “Quarterly Predictions” the institute predicts that because of domestic outlay continuing to outpace output, the high demand for imnorts will continue.

This will place increasing pressure on the balance of payments, which is forecast to move from a s22m surplus in 1969-70 to a deficit of s9om in 197071, and a sl4om deficit in 1971-72. The institute says: “We forecast that the pace of inflation will slacken in 197172 as will, but to a lesser extent, the rate of growth in production. In large part this slackening will result from the recently applied fiscal, and other restraints. “In spite of these, we expect that growth in domestic outlay, which we forecast to increase 14 per cent, will continue to outpace the increase in output, although the difference will narrow. “The gross national product is forecast to increase 9 per cent in 1970-71, and domestic outlay 9J per cent. As a result, the high demand for imports will continue and will place increasing pressure on the balance of payments."

Govt spending The over-all pace of expansion in 1971-72 will, to a large extent, depend on the rate of increase in Government expenditure, the institute says. “We have assumed that the declared intention to hold this growth rate to a 4 per cent in real terms will entail an increase of 8J per cent in the value of Government expenditure in 1971-72, compared with 14 per cent in 1970. Higher incomes “The Hi per cent increase in gross national product which we forecast to occur during 1970-71 is greater than in any year since 1950-51, but 6 per cent of the increase arises from the present rapid inflation which also is without parallel in the years since the wool boom.”

Apart from farmers’ incomes all incomes are expected to increase substantially. Wages and salaries are forecast to increase 13 per cent in 1970-71 and a further 9 per cent in 197172.

A similar increase is forecast in company income. "In the present confused situation, assessment of likely future changes in income is inevitably arbitrary," says the institute. “But we have assumed that

the current explorations on wage-fixing procedures, supported by price justifications and fiscal restraint, will have some success in moderating the pace of income inflation. “We forecast that private income will increase 8 per cent in 1971-72, compared with 11 per cent in 1970-71.” Export prices The over-all level of export prices is forecast to remain stable over the period to March, 1972, although there will be a decline in some areas, including wool. The summary concludes by saying that, in contrast, import prices are forecast to rise 6 per cent in 1970-71 and 4 per cent in 1971-72. Coupled with the forecast large growth in volume, they would lead to the balance-of-payments difficulties outlined.

Some other points made, in brief, are:— Estimating a drop of ssm or 1.7 per cent in farming income for 1969-70, the institute forecasts there will be a 61 per cent increase in the year ending March, 1971, but no further change in 197172. Looking at the export position in more detail, the institute forecasts a 10 per cent increase in value of dairy exports during the year ending June, 1971, and a further 4 per cent increase is forecast for 1971-72. Meat exports are estimated to amount to $395m in the year ending June, 1971, an increase of 7 per cent. A much slower rate of increase is forecast for the 1971-72 June year—2l per cent to s4osm. The value of New Zealand’s wool exports in the 1970-71 June year is estimated to amount to s2oom this assumes some fall in the over-all average price and little change in the volume of exports.

“It seems reasonable to expect some strengthening in our markers to accompany the increased level of economic activity forecast for the United States,” the institute says. “This may be offset by a levelling in the rate of growth in other principal consigning countries.” Other exports increased 15 per cent to $299m during the year ended June, 1970, and the institute estimates that in 1970-71 and 1971-72 the increase will be 9 per cent.