Rosy forecasts on economic trends

Press, 20 July 1988, Page 4

Rosy forecasts on economic trends

By

OLIVER RIDDELL

in Wellington

Rosy economic forecasts for New Zealand are contained in the Planning Council’s interim report yesterday on economic trends for the next five years, and beyond.

Unemployment is predicted to rise about 15 per cent during the next three years, which would have registered unemployment hitting a peak of about 125,000 in 1991. The Planning Council said there was no realistic step the Government could take on unemployment in the short-term that would not “blow out” the other indicators. The forecasts are a series of projections based on a number of assumptions, including 3 per cent annual inflation for each of the next 10 years. This led the Planning Council to forecast real growth in gross domestic product, reduced overseas debt as a proportion of gross domestic product,

and the current account balance in surplus as a percentage of gross domestic product.

From a low of less than 1 per cent in 1988, gross domestic product was predicted to rise steadily during the early 1990 s to go back over 3 per cent real growth by 1990. The current account balance was forecast to rise from a deficit of 5.5 per cent in 1986 to parity in 1989 and to be in surplus by 5 per cent in 1994. There would be a commensurate drop in the overseas debt as a proportion of gross domestic product from 66 per cent in 1988 to 50 per cent by 1992, 40 per cent in 1994, and slower decreases

thereafter.

The Planning Council said it had found this last result surprising, and agreed that many would dispute that it would be as easy as predicted. There might be “real world” constraints, but 3 per cent inflation for each of the next 10 years would help reduce overseas debt as a percentage of gross domestic product by 40 per cent if there were no new overseas borrowings. Any change to any aspect of this model impacted on other aspects, the Planning Council said. For example, the predictions had been made on assumptions of slow general growth in exports and slow increases in pro-

ductivity. If a faster rate of productivity were assumed, there would be a faster growth in gross domestic product, a pushed-up unemployment level, a reduced rate of overseas debt repayment, and a slower improvement in the current account balance. With unemployment levels rising only 15 per cent in three years, the Planning Council said it was unrealistic to be thinking in terms of 200,000 registered unemployed. “We are reasonably confident about our forecasts out to 1992 but after that they need to be treated with caution,” the Planning Council said.