Study says strong economy possible

Press, 7 September 1984, Page 26

Study says strong economy possible

PA Wellington Strong economic growth Eroviding more jobs and etter incomes is possible this decade should Governments pursue the drive for a more efficient economy, according to a study made at Victoria University of Wellington. The study holds out the prospect that by 1990 the nation could achieve an annual growth rate of 4.9 per cent, increases of 1.5 per cent a year in the real wage rate and a marked decrease in unemployment. The economists who carried out the study, Professor Bryan Philpott and Professor Adolf Stroombergen, say the potential for growth that now exists was brought about by the 20 per cent devaluation. Their conclusions follow from economic research carried out with the use of a computerised model of the economy established at the university. The report on their research emphasises that the growth potential outlined does not represent a forecast but only what could be realised if the assumptions and policy assumptions taken into account prove correct. These are

based on Government indications of its policy intentions and past actions. The summary of the research says that devaluation greatly improved the forward picture of the economy, showing up a potential marked improvement in export competitiveness, acceleration of export growth, a g.d.p. growth rate of 3.1 per cent and the elimination of unemployment. “The price which is paid for this achievement is, however, a virtually static level of real-wage rates over the period (to 1990). The gains are therefore largely in numbers at work rather than a rising standard of living. “The introduction of a faster rate of technical change (on top of devaluation) secures an even further and very significant improvement stemming from greatly improved price competitiveness, much faster exports, growth in real g.d.p. of 4.9 per cent a year, and in the real-wage rate of 1.5 per cent a year, thus combining more people at work with a higher per capital standard of living. The authors emphasise that the prospects of achieving these growth rates de-

pend entirely on making the devaluation stick — that is by ensuring that the benefits are not eroded by too high a rise in domestic prices as a result of increases in the cost of imports — and by the introduction of improved national economic efficiency. The words “technical change” are used to describe improved economic managements. The words cover such moves as removal of export subsidies and protection afforded New Zealand industry through import licensing. The authors have workd into the equation the operation of a prices and income policy and made provision for what they term “modest revaluation” of the dollar to reduce price increases and assist in producing “the real devaluation without which the growth potential we show for 1990 will not be realised.” The word “real" in this context covers the extent of devaluation after the full effects of the 20 per cent depreciation of the currency are assessed, making allowance for the extra costs to the economy incurred as a result of it.