Continuing investment augurs well

Press, 29 May 1982, Page 21

Continuing investment augurs well

PA Wellington Despite a slowdown in economic activity, the business sector is continuing to invest strongly according to the Reserve Bank’s latest Bulletin. “New Zealand’s short-term future depends to a large degree on how prolonged the world recession is. Nevertheless, in so far as a general upturn in the 'world economy is hoped for in 1983, the continued confidence the business sector seems to have in investment prospects augurs well for New Zealand's ability to respond.” The bank says the major development projects have given a needed boost to investment expenditure and growth prospects in New Zealand both directly and through induced investment expenditure in other sectors.

Private investment is seen to be the most likely major element supporting economic activity this year. The bank predicted that the slower rate of activity in

the economy is likely to be maintained for most of the year. Last year, support by the financial sector for increased domestic economic activity had resulted in private sector credit expanding at a much higher rate than growth in deposits. Ensuing competition for funds put pressure on interest rates. To stabilise rates and restrict growth of lending the Government introduced the financial services regulations last November. Another influence on activity has been the deteriorating external balance, because of depressed export receipts and increasing import payments from the increased domestic activity.

“Since there now seems little prospect of significant improvement in the external sector before the end of 1982, any growth in domestic activity will have to come from other sources.” Growth in the economy last year was led by private

consumption expenditure and a recovery in residential building construction. Retail expenditure slowed again in late 1981 and private consumption was expected to be fairly flat during 1982.

The over-all inflation rate increased again during the last six months, with the primary contributor being rising prices for existing houses.

The bank expects building activity to level off this year, because of shortages in materials, difficulties in getting skilled labour, and tightening mortgage finance. The expected lower growth rate in the gross domestic product will be because of constraints of the rising external deficit, lower Government expenditure, and a tighter monetary sector. Lending is expected to be less during the coming months, and the growth rates of monetary aggregates should ease as money becomes less readily available, the bank savs. .