THE PRESS TUESDAY, JUNE 26, 1984. N.Z.’s trade dilemma

Press, 26 June 1984, Page 20

THE PRESS TUESDAY, JUNE 26, 1984. N.Z.’s trade dilemma

The dilemma of New Zealand as an exporting nation is revealed all too clearly in the latest “Quarterly Predictions” of the New Zealand Institute of Economic Research. New Zealand has increased its export volume by 6 per cent in the last year. This did not mean that it increased its earning power by that amount. What happened was that the terms of trade went against New Zealand. This meant that New Zealand had to sell more of its produce to import the same amount of goods from elsewhere. The fall in the terms of trade was 3 per cent. In dollar terms, had the terms of trade stayed the same, New Zealand would have netted $6OO million more. In fact, the net receipts were only half of that extra amount.

Agricultural economies are more subject to such problems in terms of trade than are industrial economies. To meet these problems, the Government and the country embarked on a huge promotion of exports of manufactures in the last half of the 19705. Very substantial progress has been made, but New Zealand is still predominantly an exporter of agricultural produce and is likely to remain so for the foreseeable future. The ability of New Zealand’s farmers to grow more sheep, or produce more butter and cheese, is legendary; such skills will still be required, even to mark time in the economic race. Yet the point has to be taken into account that, besides the protectionism New Zealand faces in a number of its markets, the effort to produce more may also mean that the price may not match inflation or other rises in the cost of goods that the export dollar has to buy. “Quarterly Predictions” says that recent economic growth has been as high as 7 per

cent. Domestic demand is now weakening from this very high rate. Had the growth continued as high as 7 per cent, inflation would increase and there would have been severe problems in maintaining smooth production. New Zealand appears to have reached an unusual combination of circumstances because domestic demand shows signs of weakening and production for export is vigorous. In the past, the domestic market and export performance have tended to rise and fall together. As always, New Zealand depends heavily on the performance of the world economy. The American economy is predicted to grow at about 5.2 per cent. Western Europe is expected to increase between 1 per cent and 1.5 per cent, and growth in Japan and the west Pacific area should lie between 4 per cent and 5 per cent. Australia may have growth of about 4 per cent to 5.5 per cent. If these predicted rates are sustained, New Zealand may be expected to be able to export more and the New Zealand economy should be looking better by the end of the year. ' Production for export might do more than make good any weakening in domestic growth. For the sake of meeting, or reducing overseas debt, this divergence is no bad thing, and the effort to produce for export is just as useful in maintaining or raising the level of employment. Once again, economic trends show that the health of the New Zealand economy rests largely in the laps of economic gods in other parts of the world. Policies here must continue to allow for this unless New Zealanders are persuaded that they will be satisfied with a standard of living that does not depend a great deal on imports. The chances of persuading New Zealanders of this are next to nil.