Confidence up, banks say

Press, 30 August 1989, Page 43

Confidence up, banks say

PA Wellington Business confidence is growing in New Zealand, surveys released by two major banks show. The latest leading index of indicators released by the National Bank shows an improvement in prospects for a lasting lift in the economy.

And decision-makers say monetary conditions have eased, interest rate levels are falling, the. U.S. dollar will stay down, government surpluses, wages, and real growth will increase, and unemployment will fall, according to the Reserve Bank’s latest survey of expectations.

A survey of 189 decision-makers — incuding 77 in finance, 63 in business, 20 in agriculture, 11 in labour and 18 in other areas, such as academics — also presents an optimistic view of the economy, in the survey. It was conducted by the MRL Research Group, on behalf of the bank. In the National Bank index — which monitors economic indicators to predict where the economy is headed over the next three months — three of the five indicators used in the index rose in May, the bank said. Overseas orders for plant and machinery and the share price index both recorded above average increases, but new house permits showed a smaller improvement. Overseas orders for consumer goods and new building permits outside the housing sector fell slightly. The Reserve Bank survey showed businessman and other decision-makers expect unemployment and interest rates to fall as economic growth increases. The optimism conveyed by the survey was bolstered by Reserve Bank Governor, Dr Don Brash, saying higher expectations for inflation and wage rises were not enough to suggest the bank should

tighten monetary conditions. The survey showed a drop over the June quarter in the numbers of decisionmakers who thought monetary conditions to be tighter than neutral. The replies showed the consumer price index for the year to September was expected to be 6.1 per cent, and 6.3 per cent in the year to December, with inflation falling to 4.6 per cent in two years’ time. Government stock and bank bill interest rates were significantly lower than those previously surveyed and further cuts were expected in the coming year. The 90-day bank bill rate was expected to reach 11.9 per cent in June next year, with the five-year bond yield to fall to 11.5 per cent. The U.S. dollar exchange rate was expected to go 3.5 per cent lower, with all major cross-rates dropping over the next 12 months.

The annual average percentage change in gross domestic product was expected to be 1.3 per cent in the year to June, 1990, the most optimistic yearahead figure in the history of the survey. Over 90 per cent of replies expected the Government to achieve Table 2 budget surpluses over the next two years, with expectations for the 1990 financial year up by $l.l billion on the June quarter expectations.

Average wage rates were expected to be up by 4.9 per cent in this calendar year, up on the 4.5 per cent predicted in June.

Registered unemployed, other than those on work schemes or holiday workers, was expected to be 157,000 by the end of next month, but then fall over the following year to 152,000 in June. This was first expectation of a fall to be recorded by the survey.