N.Z. for shake-out—BERL

Press, 24 March 1988, Page 32

N.Z. for shake-out—BERL

[[The economy is headed for a short, sharp shakeout, according to the quarterly forecasts of Business and Economic Research, Ltd. ; i The ! outlook for this year is! for a sharp contraction in economic activity, [BERL says. ' This reflects' further cuts’ in household spending, contraction in farming and manufacturing, and sharp decline;in stocks, asjthese are adjusted ' to lower levels of activity. . [ r These come in addition to louver investment, which has been falling for two yehrs and will) continue to fall. i- | Government restraints on expenditures and re-

’ H Tri !■ ducing the !financial bal- [ ance will aild to the de? cline in economic activity! However, [ a sharp upturn is projected to begin with the Cliristmas trade in December. i ■ r Ideally [this [upturn should be export-led, and therd will [indeed ; be a component pf this [if the New Zealand ; dollar depreciates [about 10 per cent [in mid-year, “as we now [expect,?’ beri! ! says. However,! the[ ' upturn will be dominated [by an increase [in household spending as adjustments to tax changes and!)lower savings are completed and I the j I stock ![[ cycle responds to higher de[mand. j i .

r , i ■ "Unfortunately, this outlook means that the country’s external , trade position/ will deteriorate because df the higher import volumes, and so the nation’s [international debt obligations will continue to mount.” The Reduction in com-pany-tax to 28 per cent from tomorrow week will help business cash flows, and imputation will much reduce the net tax burden of family businesses. However, the decline in ! demand[ will place substantial j pressure on profits, [BERL says. The continued strength . of the I kiwi dollar and tariff cuts on July 1 put pressure on’ the tradeable

s■j - ! goods sector, especially primary and manufacturing industry. ; [ ; “On balance, we assess [that for most: sectors outside building arid construction, the Tower cost increases in wages and overheads will restore per unit margins in part. However, j the business yolumes will be [ lower, and business tax payments in 1988-89 will rise in total (although with substantial redistribution). | 1 “In the following year, however, the corporate tax cuts will be effective, demand will be rising and wage costs very Idw. This promises much stronger trading: conditions in calendar 1989, [ [ .