Gloomy forecast for N.Z. economy

Press, 9 December 1976, Page 3

Gloomy forecast for N.Z. economy

PA Wellington! The New Zealand Institute! of Economic Research has predicted that New Zealand’s present economic difficulties seem certain to persist throughout the next two years. The institute’s quarterly predictions said that although there might be some economic growth, it was expected to be modest, and would take place in the context of an increased foreign account deficit, and further inflation. The institute also said it was difficult to visualise any marked reduction in cost inflation without heavy reductions in real private incomes, adding to recessionary influences. Unless productivity improved substantially, there would be little scope for expansion of real domestic expenditures, let alone an increase in export-oriented investment. Emphasising that its forecasts were highly conjectural, the institute said that perhaps the most disturbing feature was the poor outlook for farming incomes. The expected fall in farming income, it said, was due to inflated farm costs rather than a collapse of product prices. Because of static production, it was forecast that increases in employment

; would be fairly limited, and the institute made the asi sumption that wage increases would correspond ; more closely to cost of living movements than they : had done recently. 1 It assumed that Government fiscal policy would fol- ' low present priorities, and ■ any changes in direction or ! emphasis could be assessed • only when they were an- ’ nounced. However, the • effects of cuts in ex--1 penditure already imple- ’ mented would be a dominant influence on economic activity ove rthe next year. The recent devaluation of the dollar would exacerbate the rate of import price increase, and in turn add to domestic inflation by an estimated 2 per cent. The institute’s estimate of the balance of payments deficit for the year ending March, 1977 was S66OM. However, it said, unless the domestic economy showed the expected sharp contraction, the estimate might prove conservative. It was also estimated that , there would be a rise in the value of dairy exports for . 1976/77 to S4BOM f.o.b. Against this, the drought in 1 Europe was not leading to the ' expected decline in dairy pro- '■ duction, rather to a fall in the rate of growth of production, and not to an actual fall in ■ output. Further improvements in dairy markets for 1977/78 were forecast, and the insti-

tute predicted the value of dairv exports would rise to $565M f.o.b. Better price prospects were expected for skim-milk powder because of a decline in milk powder stocks throughout the world. For the 1976/77 season, the institute predicted that the volume of meat exports would decrease 7 per cent, but predicted no change in volume for the following year. On the price side, however, it forecast a 7 per cent increase for meat exports in 1976/77, and a further 5 per cent increase the next year. It was also estimated that the volume of wool exports would fall by 10 per cent during 1976/77, reflecting the absence of the stockpile which existed at the beginning of the last season. The institute’s forecast for 1977/78 was for an fo.b. value of wool exports of S4BOM, although this figure was subject to a lot of uncertainty, it said. Summarising its predictions about import payments, the institute said it estimated a 10 per cent increase during 1976/77 — a 10 per cent fall in volume, and a 221 per cent price rise. For 1977/78 it predicted an increase of 10/ per cent in payments, consisting of a fall in volume of half a per cent and an 11 per cent price rise. Previous forecasts of import price movements, said the institute, had been exceeded by a considerable margin