Aust, upturn doubted

Press, 12 April 1984, Page 26

Aust, upturn doubted

NZPA staff correspondent Sydney

The Australian economic recovery will be short-lived as the effects of last year’s six-month wage freeze are overtaken, according to a major survey.

The survey, done by economists for the “Australian Financial Review” newspaper, says that the strong upswing of the last half of 1983 could not continue long into 1984, and by the end of the year the economic growth would begin to stall.

According to the economists, the prices and incomes accord between the Government and union movement which indexed wage rises to inflation, will eventually stifle growth in business investment and kill off a growth in profits.

The report predicts that as a result unemployment will rise again by the end of the year. The economists say that statistics used by the Government to back its expectations of continued growth have been proven unreliable in recent years and the economic picture they show unclear.

They even claim that the figures had been so unreliable that the estimated

growth in the September and December quarters of 1983 could prove to be simply a statistical error. The survey has been sharply criticised by the Federal Treasurer, Mr Paul Keating, and other economists, with Mr Keating criticising it as long on generalisations and short on specifics. The main point of the survey is that there was no basis for a consumer-led economic recovery in 1984. The economists say while consumer confidence is higher than ever, the small stocks held by manufacturers indicate they do not yet share that confidence; that people are still saving money rather than spending it; and that the housing boom would probably not be strong enough to feed through to a general recovery.

They say an economic recovery can not come from an expansion of the Budget deficit without increasing upwards pressure on interest rates and break down the prices and incomes accord; it could not come from wage increases because of the cost and effect on inflation; and that the farm sector recovery had finished.

A strong, sustainable surge in consumer spending

could only come from greater real income and more people in jobs, but the increase in employment in 1983 was the result of the six-month wage freeze brought in by the Fraser Government early last year. The survey says that it is only the recovery in business profits provided by the 4 per cent drop in real wages that resulted from the freeze that allowed the demand for labour to rise. “The return to wage indexation will thus remove one of the major sources of profits growth which emerged since the wages pause began,” the survey says. “Virtually constant real wages will mean that the benefit of the wages pause has ceased.

“Without much hope for a strong recovery in consumer spending and little if any prospect for a resurgence of private investment spending, virtually the only hope would be for a strong external stimulous.” Prospects for the recovery in the United States, say the economists, look increasingly worrying.

“The real problem for the recovery is the speed with which the impetus of the real wage reduction of the wages pause and the breaking of the drought will be dissipated. “The evidence that it has already largely been dissipated is likely to appear over the next six months, with signs of increasing unemployment visible before the end of 1984.”