N.Z. in bottom half of the class

Press, 11 July 1980, Page 1

N.Z. in bottom half of the class

NZPA London New Zealand’s inflation rate is expected to average out at 17 per cent this year, the Paris-based Organisation for Economic Co-operation and Development forecast yesterday. The O.E.C.D. put New Zealand in the bottom half of its league of nations, although its forecast inflation rate was mild compared with some other countries. In its half-yearly "economic outlook,” it gave three reasons for the inflation rate being nearly four points higher than last year’s average: — indirect taxes and price increases for public sector goods and services; — Increases in wage costs; and — Increases in import prices. The group of 24 industrialised nations said the New Zealand economy was reacting to a tightening of’ fiscal and monetary policy and, from the middle of last year onwards, to a deterioration in the terms of trade. ,

It agreed with the comment of the Prime Minister (Mr Muldoon) in his Budget speech last week that terms of trade will fall further in the next 12 months and that the rising price of imports will limit the orogress which will be made in slowing the domestic component of inflagon. The rise in oil prices.

the O.E.C.D. said, is expected to add about 1| per cent to final prices between last year and this year.

"The outlook for fixed investment is weak and stockbuilding is not expected to contribute to the growth of total demand,” it said. “Import volumes are likely to fall back sharply and the change in the foreign balance accounts for the forecast real Gross Domestic Product growth of just under 1 per cent.”

Larger countries, except Japan and Canada, are expected to have employment declines w’hile growth in the rest —including New Zealand —is expected to be generally modest. The O.E.C.D. also concerned itself with youth labour markets, saying that young people are particularly vulnerable to unemployment. The situation has worsened throughout the O.E.C.D. area, it said, and showed that the unemployment rate in New Zealand between the ages of 15 and 24 was 3.6 per cent (3.3 per cent last year). “Youth unemployment rates are typically double or treble those of adults,” the O.E.C.D. said.

“The improvement in the real foreign balance is likely to be more than offset by the deterioration in the terms of trade, so that the external deficit may widen to about SNZI bil-

lion, ’and 4) per cent of G.N.P.”

New Zealand, as a nonoil producer and exportdependent, falls into the bottom half of the O.E.C.D.’s league of nations, although the 17 per cent inflation forecast is mild compared with some other O.E.C.D. members, particularly Turkey (70 per cent) and Iceland (50 per cent). Australia’s rate for this year is predicted to be 10 per cent, and Britain’s 18.85 per cent.

Comments in the “economic outlook” about the performances of individual countries are set against a world-wide background of despondency and gloom for the international economy.

The United States economy has entered recession arid some European economies are showing increasing signs of weakness, the O.E.C.D. said.

“The immediate priority in all O.E.C.D. countries is to continue tight fiscal and monetary policies in order to contain the inflational impact of • the oil shock,” is said.

“Although essential for creating the conditions necessary for a restoration of balanced growth, this is only a first step on the long road to more satisfactory growth and high employment. The underlying rate of inflation is still far too high in much of the O.E.C.D. area and represents a serious constraint on growth.”