Forecast sees no sign of strong recovery

Press, 23 February 1987, Page 3

Forecast sees no sign of strong recovery

By

OLIVER RIDDELL

in Wellington A strong recovery in the economy is not evident, according to the latest survey of business opinion from the Institute of Economic Research. But the quarterly survey said this did not rule out the prospect of such a recovery at some stage during 1987.

In the three months ending December 31, 1986, stronger growth in domestic trading had been evident in manufacturing and servicing, but there had been slower growth by merchants. Builders reported that the decline in activity had become more widespread. Opinion about shortterm trading prospects were also mixed; higher proportions of both builders and merchants now expected raised levels of domestic trading while manufacturers and service sector businesses had become less optimistic.

A considerable fall in the level of manufacturing and building exports was still recorded, however, by the balance of respondents, although the survey foresaw some improvement over the March quarter.

Low demand continued to be cited by about two-

thirds of respondents as imposing the greatest constraint on increased trading.

There had been significant destocking of both raw materials and finished goods by manufacturers and builders, the survey said. During six months during which the balance of respondents had reported falling interest rates, the situation now showed a marked reversal, with most expecting increases in interest rates during the next three months.

A significant increase in the level of overdue debtors from those measured in the September quarter was another ominous feature, the survey said. Across the economy, fewer businesses reported that their profit levels were falling, but only the services sector had recorded an increase in profitability, albeit marginal.

Again, with the exception of the services sector, investment intentions had stayed relatively weak but respondents were much less negative than they had been in last year’s March quarter.

The financial sector was exceptional in its expectation of a widespread increase in approvals for

investment during the next 12 months, the survey said. The rate of labour retrenchment and the drop in overtime worked had both fallen compared with the September quarter survey, and this was expected to remain much the same during the March quarter. Skilled labour continued to become more difficult to recruit, and unskilled and semi-skilled labour continued to become easier to recruit A salient feature, the survey said, was a significant drop in business confidence, as measured by opinions on the general business situation for the next six months.

Nonetheless, businesses were still much more confident than they had been, nine months ago.

It now seemed that the stronger signals of recovery in the December quarter had been delayed, the survey said. That might have been because, in part, there was some uncertainty about the effects of the recent changes to the taxation structure on certain economic variables — such as demand levels and inflation.

Signs of a strong recovery were not apparent in the December survey, but that did not rule out the prospect of such a recovery at some stage of 1987.