Manufacturers expect economy to weaken

Press, 29 October 1981, Page 4

Manufacturers expect economy to weaken

3 A Wellington The economy will weaken lext year after buoyant coniitions, a Manufacturers’ Federation survey says. This gloomier 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 last month.

It says manufacturers are enjoying the most buoyant trading since 1978. A strong lift in economic activity during this year is expected to flatten out next year.

While the federation expects the’ economy to grow by 2.5 per cent in 1981-82, the 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 next

winter. Consumer spending is expected to be dragged back by tax and a credit squeeze. “Whichever party 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 spending and a relaxing 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.” Long-term business confidence was not helped by several factors. Widespread unease in manufacturing 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 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, the balance of payments deteriorating steadily next year. Exports are forecast to grow 5 per cent in 1981-82, falling to 3 per cent in 198283. At the same time imports propelled by high internal demand and increased construction business are forecast to grow 8 per cent this year and 6 per cent in 198283. 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 9 per -cent. But with most manufacturers saying their Ohly price improvement could be attributed to depreciation of the New Zealand dollar, the volume increase could be about 12 to 13 per cent. There was. little improvement in the value of exports in food and/carpets while leathergoods, including tanning, were well down on the previous year.

Leaving aside these industries the growth rate was 29 per cent, a far stronger growth in manufactured exports than would have been anticipated during last year’s domestic recession.

The report says manufacturers have raised productivity and efficiency. “They are pleased with trading conditions, but after recent election-year experiences their planning is well tempered with caution.” This caution approach has seen manufacturers at great pain to avoid taking on more labour because of the'risk of a decline and costly redundancy. Existing staff 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.