‘Oil prices hit N.Z. economic recovery’

Press, 20 July 1979, Page 2

‘Oil prices hit N.Z. economic recovery’

NZPA London The New Zealand economy appeared to have started on a modest recovery before the recent oil price rise, according to the Organisation for Economic Co-operation and Development. But in line with all other O.E.C.D. members New Zealand would be affected by the rise which would lift inflation, increase current account deficits, and slow the rate of growth. The predictions are contained in the sixth-monthly “Economic Outlook” released by the Paris-based O.E.C.D. yesterday. It admits that the oil crisis has already made the assessments it contains out of date, and that the extent of the resulting changes to economic trends “cannot be forecast with precision.” The purely mechanical effects on a world basis would be likely to increase consumer price inflation by 1 per cent, or higher if wages rise in sympathy, to double the annual O.E.C.D. total balance of payments deficit from the predicted $2O billion to $4O billion; and to reduce forecast gross national product growth by about three-quarters of 1 per cent to about 2 per cent across the board.

In the section of the report dealing with the smaller O.E.C.D. nations, the survey said the growth of gross domestic product (G.D.P.) appeared to be increasing although some of the smaller nations recorded results in 1978 against this trend.

“In New Zealand it now looks as if a moderate recovery has started, following expansionary Government action,” the O.E.C.D. said. Real G.D.P. in New Zealand had grown by only about 0.5 per cent last year, with no increase in final do-

mestic demand. But the year had ended with indications of a strong rise in consumption, induced by backdated pay rises in the public sector and by across the board tax cuts.

In common with most of the O.E.C.D.’s smaller members New Zealand had recorded a substantial fall in the total volume of imports. Nominal wage gains at 16 per ceht were higher than in most other nations, and the country was expected to experience one of the sharpest accelerations in the present year—a predicted 19 per cent.

The report said a strong increase in domestic demand was the main feature of the outlook for the smaller nations.

N‘ew Zealand was expected to experience an acceleration of about 2.25 per cent in its growth rate which, should, together with the increase in demand, lower unemployment to a small extent.

The forecast was gloomy about New Zealand’s prospects of reducing its current account deficit. “A current account deterioration is expected to be common to nearly all smaller countries except Australia, where the large deficit in 1978 may be substantially reduced.” The deterioration was likely to be made worse by the rise in oil prices. In a special section of “the oil situation,” the report said immediate energy conservation on a larger scale than previously was needed immediately if an unacceptable rundown in stocks or a big change in present economic forecasts was to be avoided.

The purely mechanical impact of the oil price rise on inflation and growth could also be aggravated by other influences.