Trade imbalance threatened

Press, 29 November 1976, Page 6

Trade imbalance threatened

From

ROBERT HORROCKS,

NZPA staff correspondent

Sydney Unless New Zealand follows Australia's example and devalues its dollar, the Tasman trade balance is likely to revert to more than two to one in Australia’s favour.

There has lieen a reduction in the last year in the large balance in Australia’s favour. It was reduced to about 1.8 to one in the year ended June 30.

The immediate effect of the 17.5 per cent Australian devaluation in the absence of a counter-move by the NewZealand Government would be to reduce the cost of Australian imports into New Zealand by that amount.

In Australian currency terms, the exporter on this side of the Tasman would still receive the same price. The New Zealand exporter, on the other hand, will have to increase his prices in Australia to get the same return as he has been receiving in terms of the New Zealand dollar.

There will, however, be some cost adjustments that could be expected ultimately to affect exporters on both sides of the Tasman — the most important being freight rates.

In the year ended June 30, | New Zealand exported goods and services worth sAust2sl.34M to Australia, Australia sold New Zealand goods worth sAust4ss 25M.

The trend in New Zealand’s favour was largely attributed to New Zealand devaluations in 1975.

Major Australian exports to New Zealand include fuel oils, steel, and motorvehicles.

The leader of Australia’s manufacturing industry, Mr Max Dillon, was guarded in his reaction last evening to the Australian devaluation. Mr Dillon is president of rhe Associated Chambers of Manufactures in Australia, which has 20.000 member companies, and has New Zealand as .its largest market.

He said he would like to see more from his Government on what advantages devaluation would bring and an indication of what moves were planned to prevent further inflation as a result of the decision. As to the way in which the decision ' would affect Aus-! 'ralia’s trade with New Zea-[ land, Mr Dillon countered by asking; “Do you think Newi Zealand will take retaliatory; action T" If New Zealand did not alter its currency rate, he said, Australian manufacturers would appear to have gamed an improved competitive situation on the New Zealand market.

But because of import licensing, there was not free market movement and it did not necessarily follow that the trend towards a closing balance of trade — at present running 1.8 to one in favour

of Australia — wouid be | halted, said Mr Dillon. A large proportion of Australian manufacturers depended on imported mater-| ials, he said. These would! cost more, pushing up prices j and leading to pressure on the wage structure. Mr Dillon said that New Zealand manufacturers had found that devaluation brought short-term advantages but in the long term added to the inflationary spiral. New Zealand would probablv devalue to retain its export drive to Australia, two leaders in industry said in Auckland last evening, [according to a Press Association message. They both said the Australian move was unexpected and both agreed that it [would increase inflation in , Australia while providing only short-term relief to the 'economy there The president of the Auckland Manufacturers’ Association (Mr F. Bruell) said that the New Zealand economy could have handled an Aus-

tralian devaluation of up to 10 per cent. i “But at 17 j per cent, the gap is too big,’’ he said. “We will have to do something about it.”

The deputy managing director and marketing director of N.Z. Forest Products (Mr jD. O. Walker) said that the 'Australian move would not be disastrous for his company. • But he thought it was “highlv probable” that New Zealand would devalue to continue its export drive. The Australian move was “pretty massive.”

The considerable improve- I ment from the New Zealand 1 view in trade with Australia in recent times was directly I related to the currency J values as they stood before ' today, said Mr Walker. If 1 there was no move in the < New Zealand dollar, there I would certainly be an ad- 1 verse effect on some New ’ Zealand exporters. The president of Federated < Farmers (Mr J. T. Kneebone) 1 said that Australian devaluation would create “quite serious” problems for New Zealand — but farming • exports across the Tasman ■ were not significant, and so f it would not directly affect r the fanning industry serioqsly. t However, if New Zealand ; (followed the Australian lead • land devalued bv a similar ramount, it would help farm- ■ ers. Otherwise, they, like ■•other members of the community, would face increases in the cost of living. >1 The public affairs manager I of Tasman Pulp and Paper, Ltd (Mr R. A. Anderson), said that the devaluation , would have a considerable effect on the company’s ex-

ports. Just how serious, he said, would not be known until the situation had been carefully studied. There was also possible action by the New Zealand Government to be considered. Mr B. H. Goldworthy, executive officer of the New Zealand Textile and Garment Manufacturers’ Federation. said the devaluation would have a very serious effect on the industry unless New Zealand also devalued to some extent. The New Zealand trade now exported about S2OM worth of goods a year to Australia. The tourist industry greeted the Australian devaluation with mixed reaction. Those involved in sending tourists to Australia welcomed the news, while those catering for Australian tourists to New Zealand were not so happy. Mr Oliver Newbegin, vicechairman of the overseas tour operators committee of the Travel. Operators’ Association, said that it had been a little ridiculous lately with New Zealanders having to pay almost 30 per cent diffi erence between New Zealand . dollars and Australian dol- ■ lars. “As a result, Australia has [ been pretty hard hit by 1 tourists from here,” he ' said. Mr D. A. Banks, chairman ■ of the inbound tour operators committee, said the devaluation was a serious situation.

“Undoubtedly we will have to reorganise and recost tour progarmmes,” he said. “This will seriously affect operators catering for Australian tourists.”