'Economist forecasts December recovery

Press, 24 March 1988, Page 32

'Economist forecasts December recovery

PA' : | Wellington {The economy will !continue to i contract for most of] the {year but should start a sharp recovery by December, a Wellington economist, Mr Paul Frater, says. it was clear that infla 7 tion was -finally beaten and /Mr Frater said it would be around 4 per cent by the end of the year. | i- : ; [The first signs of the reversal of-the downturn in! {business confidence were lower interest rates, lower {inflation and a lower i New Zealand dollar, Mr Frater told a business seminar in Wellington yesterday. | He predicted a shift in

[the Government’s : deflationary fiscal policy [to. one of achieving a lower; more stable dollar. ['.[: “It appears the Government would be relaxed with a 10 to 15: peij cent drop in the value of the New Zealand dollar.” ! Mr [Frater, a director of Business and Economic Research, Ltd, said it was inevitable [the Government [[ would depreciate the New Zealand dollar later jhis ydar. i i In economic terms, the 'June [or September [quarters would; [be; ideal for depreciation! ■ as '[ [[there would be surplus .capacity [in the economy and the labour market. The lower-valued dollar would spark a [ recovery

for exporters and industries competing against imports, j he; said. Meanwhile, business failures would continue and retailers would have to keep their price expectations down as household spending; was expected to fall 2 per-cent by volume this year. ' ' I - ! This year’s wage round would be a difficult one with the average settlement between 3 and 5 per cent, Mr Frater said. People expecting relief from th[e; tax cuts announced [in- December last year might be , surprised to learn I that the Government’s tax take would increase by $530 million! in 1988-89.

.|;i“ln 1989-90, however, the private sector ik likely to be a major beneficiary of the package.” j • I The lower corporate tax Cate of 28 per cent and divident imputation would give the business shctor a good boo[st next ypar. [.. | Adjusting to the sharp recovery[in the December quarter could be [just as difficcult! as coping with this year’s downturn, Mr Frater said. | Some businesses would lie caught short of stocks and with; low equity. This would hamper chances for growth. [ Many [businesses would be oiit-manouevered by better! organised competitors during the recovery, he said, i [ I