Economy ‘on recovery path’

Press, 26 June 1989, Page 2

Economy ‘on recovery path’

Wellington reporter

The economy is on a path of mild recovery, but it is a long and winding road to economic growth, according to the latest National Bank Business Outlook survey.

Welcome signs in the survey are the stability of inflation expectations (about 6.5 per cent), a steady rise in business confidence and a higher activity outlook. But the bank pointed to a lack of investment plans, revealed in the refusal of the investment outlook index to trend upwards, as the most discouraging feature of the survey.

"Until investment activity does pick up in a sustained way, it will be premature to speak of a return to economic growth.” The strength of. the economic recovery in this year’s first quarter was not satisfactory, but it would be disastrous to try to speed it up by relaxing monetary policy, the bank said.

A sustained recovery required a gradual buildup to domestic and overseas business confidence in the economy.

“The way to contribute to that process is to show patience, give business people the chance to forget the existence of politicians, and keep policy firmly focused on the medium term,” the bank said. “The Government has been doing all this extremely well over the past four months. It should stick to it.” The June survey was the third in a row to show a rise in the business confidence index. All sectors — retail, manufacturing, construction, farming, and services — improved in their views of general business confidence over the next year.

The bank attributed this to the removal of uncertainty in key policies, including the corporate tax rate, and to the perception spreading that economic policy had refocused on the medium term. Removal of uncertainty

over national superannuation, interest withholding tax, capital gains tax and land tax should boost confidence further, argued the bank. The refusal of the investment outlook index for manufacturing to trend upwards was confusing, given increased business confidence, a promising activity outlook and a rising capacity utilisation index. Explanations might include the low level of capacity use, the high level of inflation-adjusted interest rates, and expectations of slower growth in Australia — the largest importerr of New Zea-land-manufactured goods. “Business Outlook” is based on the results of a nation-wide opinion survey of about 800 businesses — about 200 in manufacturing, retail, and service, 120 in farming and 80 in construction. It has a response rate of 60 to 70 per cent.