THE PRESS THURSDAY, FEBRUARY 20, 1986. Business pessimism

Press, 20 February 1986, Page 12

THE PRESS THURSDAY, FEBRUARY 20, 1986. Business pessimism

The pessimistic outlook for business in the survey conducted by the Institute of Economic Research largely corresponds with that expressed recently by the Prime Minister/Mr Lange. Economic activity has held up longer than was expected, but all indicators now point to a slowing. Predictions about the economy may not be the final word; but the institute’s survey is an extensive one, and if most businesses are expecting the economy to turn down, and have already found it to be turning down over the last three months, they will make investment decisions, place orders for materials, decide how many staff they will

need, and generally make plans according to what they think the market will bear. With businesses, particularly, predictions have a way of becoming self-fulfilling prophecies. Until recently, the economy has been hit by high inflation, by high interest rates, and by the fluctuating value of the floating New Zealand dollar; so far it has not been hit by a recession which has entailed a great increase in job losses. In fact, there has been an increase in the number of jobs. Unemployment is now expected to rise, particularly for those without skills. Many of the businesses surveyed have found that demand has lessened. It might have been expected that demand would increase somewhat through the large wage increases, and there might have been something of a demand-led growth. So far, there does not appear to be any evidence that this is what is happening or that this is expected to happen. The institute survey is not very informative on the prospects for exports. It says that manufacturers have become markedly pessimistic over export sales. In spite of the drastic changes which have taken place within the New Zealand economy since the implementation of the financier policies of the Minister of Finance, Mr Douglas, the character of the economy has remained largely the same. The constraint on the economy has always been the balance of payments and there is little hope that this

will improve soon or substantially. The Government has given greater emphasis to an orientation towards markets and, in time, the economy should be the stronger for that, provided that New Zealand exporters are not priced out of the markets. If New Zealanders want to pay themselves the generous increases of the order they have recently obtained, there has to be a marked improvement in the performance of the economy and much higher productivity. Otherwise, New Zealanders will find that they are paying themselves more and more and the country will eventually be in dire economic straits. •

A downturn in the economy has been important so that the very significant changes which have occurred in the economy will have their effect by genuine rearrangements in investment and productive; effort. It is easy in present circumstances to be gloomy. The gloom should be offset by explanations of the ways in which the economy could be expected to improve after a recession. Such an explanation would be the more convincing if it demonstrated the way in which exports could be increased. All the arguments advanced so far about how changes are making it difficult to make accurate predictions do not alter the fact that the traditional constraint on the economy has been the balance of payments and that New Zealand’s economy is still basically an agricultural economy. The Government has been an outstanding advocate of one form of traditional economics. What is needed at the moment is a clear argument to show that the economic strategies that have been adopted can be assured of working in an agricultural economy of the type that New Zealand has and that they will work in spite of the constraints which have for so, long been laid on the country. The forecast recession would be the easier to bear if there were surer hope for the future.