N.Z.’s price position improving

Press, 9 November 1988, Page 42

N.Z.’s price position improving

PA Wellington New Zealand’s falling inflation rate has begun to improve its price competitiveness, particularly against Australia, says the Bank of New’ Zealand: This is the conclusion of bank economists writing in the latest issue of BNZ’s monthly publication, "Economic Indicators.” International competitiveness has always been an issue for New Zealand, and it is difficult to quantify, the BNZ says. A new index measuring the competitiveness of exports in relation to inflation and exchange rates shows the trough of worsening relativity has finally bottomed out. The index suggests that price competitiveness has fallen 14 per cent since June, 1979, and 32 per cent since March, 1985. “To restore price competitiveness for the manufacturing sector to the level of March, 1985, either a significant depreciation of the New Zealand dollar against the Australian dollar and United States dollar would be required or our price levels, relative to these countries, would have to be sharply reduced. “However, changes in the yen-New Zealand dollar rate have maintained our price competitiveness with competing Japanese goods," the BNZ says. BNZ forecasts on inflation and exchange rates suggest that price competitiveness of manufacturers will improve over the next three years. The bank’s economists say the speed of manufacturers’ response, in improved investment and output, will be important in determining the future direction of the economy. While the price competitiveness is important, it is not the only factor determining international competitiveness, they say. Technological advances, marketing strategies and the inability to supply markets because of low productive capacity or industrial disruption are three of the main ones.