B.N.Z. points to main N.Z. economic problems

Press, 30 August 1977, Page 27

B.N.Z. points to main N.Z. economic problems

An upturn In world trade resulted in some improve- 1 ment in New Zealand’s balance of payments, while internal measures and re-* straints imposed by the Gov-|l ernment led to a reduction in the internal inflation rate I' without appreciable increase I In unemplovment. Pro-' nounced difficulties still per-1 list however, said the annual report of the Bank of I Sew Zealand. || Although the balance-on-, trade transactions improved wrongly during the year, a rising deficit on invisible' transactions (non-merchan-: dise trade) hindered a sim-i flat recovery in the overall p turrent account balance. Prominent factors contrib-! uting to the deteriorating; Invisible balance were theH effect of oil price increases! tin travel and transport; tosts, and the increasing! tost of servicing public and! Jrivate overseas debt. During 1976-77 the volume; t>f primary exports was aug-l merited by a high rate of stock slaughtering, a run-!

down of producer board; ttocks. and larger yields due' Io favourable climatic condi-! lions.

The first two of these; Influences are not sustain- i able, and therefore the ca-i pacity to maintain the vol-( time of primary exports dur-, ng 1977/78 is limited. Furthermore, there is re-h tiricted scope for reduction; in import volumes, while the prospect for an improvement! in the invisible balance is! nnfavourable due to the; costs of servicing increased! overseas debt and the con-' tinuing effect of higher oil! prices on travel, and trans-j port costs, the report to Par-: hament said. These facts point to renewed pressure on the bal-i ance of payments in the | coming year, emphasising the need for domestic de-, mand to be kept under firm restraint. Further, if expectations jfi high rates of inflation con-1 tinue there will be little motivation to reduce consumer spending in the community , and official measures to re- i attain internal demand may

i take longer to have the f desired effect. Of more fundamental concern in the longer term is 'the structural weakness that has become evident in the I New Zealand economy following a significant down- 1 ward movement in New Zea-! land’s terms of trade. This problem is manifest; in the persistent balance of! payments deficit despite the buoyant returns from abroad! for our primary exports. The challenge here is one) 'of restructuring the New; Zealand economy so as to 'achieve a higher volume of; ! production in the export sec-1 (tor and of reducing the! dependence of much of our industrial production and! , employment on imported) raw materials and comiponents. | It is only from such a restructured base that New ; Zealand can enjoy a sustained increase in its stan;dard of living. I Policies required to I achieve this objective must (be based on linking short iterm policies to sound longer

(term planning and it is lin this context that the board of the bank welcomed) the establishment of the)

(New Zealand Planning Coun-'l cil in December 1976. |l The past year has seenj | some narrowing in the gap| (between competitive interest; (rates and those paid by the < Government. li It is hoped by the direct-’;: !ors of the B.N.Z. that this] ) indicates an intention in the (near future to use open mar-! ;ket operations to influence . monetary conditions rather! 'than restraint on credit expansion in the controlled; sector. ; The Bank of New Zealand increased net profit 26.0 per| cent to $7,481,000 in the; .'year to March 31. | The provision for taxation) 'was S2.IM higher at $8,283,000, and after provid-; ,'ing for steady dividend of >53,605,000 the total capital I >iand reserves of the bank; (were $85.6M. ■I “The improvement in! earnings reflects, in part, the! I greater initiative allowed j trading banks as a result of 'the monetary changes in-

Produced by the Government 1 ;in March 1976, which'l enabled the adoption of pol-'i icies orientated toward an J improved service and better]i trading results,” the annual !> .report said. t > “The improved result has ■ been achieved in a far more i 'competitive environment ji 'than has existed for many I 1 years past. Costs continue top rise, but these are kept'I under close and careful) scrutiny.” 11 In March the bank’s total; trading and savings bank! deposits reached $1,500M for;, j the first time. I After the freeing of most; ('interest rates from official! 'control in March 1976, and' jinci eases in controlled rates,! J rapid growth took place in 'both trading and savings (bank term-deposits. A rapid growth in lending; • was particularly evident dur-; • ing the latter half of the! year. For the month of March.; i 1977, lending averaged; SB6OM compared with S7OOM' t for March, 1976, showing an' ■ increase of SI6OM or 12.31

per cent. Total farm-sector lending I grew only moderately over ;the year, reflecting improved

liquidity resulting from; buoyant meat and wool] prices. However, within that sec-) tor, an increase in the level of farm investment saw) additional demand for bank' accommodation from individual farmers. Borrowing requirements of farm-service industries, particularly meat companies and wool buyers, grew considerably in response to higher product prices, increases in the need for (working capital following 'expansion programmes, and 'distortion of shipping timetables. | The greatest demand for bank accommodation came (from the non-farming sector. i Lending to manufacturers, ! especially those engaged in (exporting, and loans for 'housing increased considerably. j Since March 31, two reductions in Government securities ratios affecting savings banks have taken effect, releasing some addiitional funds for housing loans. The Bank of New Zealand has formal arrangements with overseas banks in 150 countries, and territories and is well equipped to respond to the increasing diversification of overseas 'trade, said the annual report. It has branches in Mel-

bourne, Sydney and Bris-U bane, and New Zealand’s special interests in Japanp and South-East Asia are pro-! moted from representative) 'offices in Tokyo and Sing-' apore. The London branch plays an important role in servic- ' |ing New Zealand/United (Kingdom trade, and in > (arranging and servicing foreign currency credit ' [facilities for corporate: borrowers. '| Representation in London,) [which is an important finan-| icial centre for the E.E.C.; (also gives the bank opportunities to service New Zea-! [land financial and trade 'transactions with the Com-' (mon Market and other countries on the European Continent. i