Slower growth predicted

Press, 29 October 1981, Page 25

Slower growth predicted

PA Wellington The economy will weaken next year from buoyant conditions, a Manufacturers’ Federation survey says. This gloomy economic picture is shown in a market intelligence report prepared by the federation. The report is based on an interpretation of official statistics, and meetings held with manufacturers through the country in the past month.

It says manufacturers are enjoying the most buoyant trading conditions since 1978. Though there has been a strong increase in economic activity during 1981 this is expected to flatten out in 1982.

The Federation expects the economy to grow by 2.5 per cent in 1981-82, but the rate of growth is expected to slip back to about 1.5 per cent for 1982-83, because steps will need to be taken to squeeze the money supply and lower the internal deficit.

The reversal in economic activity is expected during

the 1982 winter. Consumer spending is expected to be dragged back by taxation and a credit squeeze. “Whichever Government is elected to office will somehow need to neutralise the excessive liquidity in the economy,” the report says. This year’s recovery is being driven by high Government expenditure and a relaxation of monetary restraints.

There are fears that the economy is in danger of inflation, propelled by excessive wage demands and current monetary and fiscal policies, according to the report. Long term business confidence is not being helped by a number of factors. There is widespread unease in the manufacturing sector about industries studies, the direction of import licensing policy, and some aspects of the proposed Closer Economic Relationship with Australia.

The report says easy credit has been a dominant factor in stimulating a revival in demand for a wide

range of big ticket consumer items — including real estate and motor vehicles.

The balance of payments outlook is bleak. The terms of trade are expected to remain weak with the balance of payments deteriorating steadily during 1982. Export volume is forecast to grow at five per cent in 1981-82, falling back to three per cent in 1982-83. At the same time imports, propelled by high internal demand and increased construction business, are forecast to grow by eight per cent this year and six per cent in 1982-83. Manufactured exports grew 23.6 per cent in the year to June. After allowing for inflation this would appear to be an increase in volume of nine per cent. But with most manufacturers claiming their only price improvement could be attributed to depreciation of the New Zealand dollar, the volume increase could be around 12-13 per cent. There was little improvement in exports in value terms in the food and carpet sector, and leathergoods, in-

eluding tanning were down substantially on the previous year. Leaving aside these industries the growth rate was 29 per cent, a far stronger growth in manufactured exports that would have been expected during last year’s domestic recession.

The report says manufacturers have been successful in raising productivity and efficiency. “They are pleased with trading conditions, but, after recent election year experiences, their planning is well tempered with caution.” This cautious approach has seen manufacturers at great pains to avoid taking on more labour because of the risk of downturn and costly redundancy. Existing staff resources have been used more effectively.

Uncertainty is making the climate for investors discouraging. Among factors causing uncertainty are industry studies, widespread unease about government import licensing policies, and the temporary nature of the recovery.