Economic slump no surprise

Press, 31 July 1986, Page 1

Economic slump no surprise

Wellington reporter The Minister of Finance, Mr Douglas, and National’s spokesman on finance, Mr Gair, agreed yesterday that a further drop in economic activity in the March quarter came as no surprise. However, Mr Douglas said the 2.5 per cent contraction was part of the long-forecast downturn on the path to economic recovery while Mr Gair said. it simply showed that Labour was strangling private sector growth. The Statistics Depart-

ment’s gross domestic product index shows that growth in the year to March was down to 0.9 per cent, compared with the boom figure of 7 per cent recorded for the previous year. The G.D.P. index has now shown a contraction in economic activity for three successive quarters. The index slipped 0.3 per cent in the September quarter and 0.6 per cent in the last three months of 1985. The contraction has been uneven between

economic sectors, with manufacturing output declining 3.9 per cent and transport, communications and business services industries expanding 5.3 per cent in the year to March. Mr Douglas argued that the 2.5 per cent over-all contraction in the March quarter was an exaggerated Indication of the downturn because it reflected the loss of production in the manufacturing and transport sectors during the meat industry strike. The Government, and all reputable independent

forecasters had clearly predicted since 1984 that ' a slowdown in the economy would be part of the course to growth In the medium term, said Mr Douglas. He had said in 1984 that his measures to cut the fiscal deficit would reduce spending power in the economy in the short term, paving the way for a soundly based recovery. “The only surprise has been the length of time which has passed before the downturn actually occurred.’’

Mr Douglas attributed the delay to the initial confidence generated by Labour’s policies. He pointed to a recent Institute of Economic Research forecast that the recession will end late in 1986. However, Mr Gair saw the March quarter contraction as very negative for the economy, particularly employment, business profitability, and investment Mr Gair pointed to total unemployment of 60,265 at the end of June, 12,000 higher than a year

earlier. He noted that the downturn was uneven, with continued growth in the Government services sector, particularly the Social Welfare and . Inland Revenue departments. New Zealand business was struggling under the costs of the last wage round and high interest, exchange, and inflation rates, said Mr Gair. National was committed to reversing a trend towards more Government and less private-sector growth, he said.