Economic recovery ‘not threatened yet’

Press, 29 November 1989, Page 3

Economic recovery ‘not threatened yet’

Business confidence has taken a heavy knock in the last two months, but economic recovery is not threatened yet, the National Bank says in its latest “Business Outlook” publication. A sharp drop in investment intentions does, however, contain the seeds of a faltering in the return to growth.

The bank’s measures of confidence — the outlook for business activity, interest rates, and the level of use of plant and machinery — had all deteriorated over the last two months, the bank said. “It is not surprising that investment intentions have turned down this month, after resisting the downward pressure coming from business confidence and higher interest rates last month. “Potentially, a sustained downturn in business investment intentions would be the most damaging influence on the sustainability of the economic recovery that is under way.”

All the indicators the bank measured were still higher than in the first half of this year.

The DFC failure, fears about inflation,

disputes in the dairy and port industries, and meat industry restructuring had all had adverse impacts on business sentiment — particularly farmers. “Fortunately, there are indications that these events are short-term phenomena not affecting our growth profile,” the bank said.

“Growth now appears more widespread, with forestry, mining, manufacturing, and tourism receipts forecast to more than offset livestock declines in the export sector. "Equally encouraging is the fact that, seen from a longer-term perspective, our survey results do not provide any cause for alarm.

“Undeniably the economy is going through a difficult patch,” the bank said. “Although it is not the recovery itself that is at stake at this stage, there are growing concerns about the pace of it.” The bank saw no reason why inflation should rise much above current levels, despite an increase in inflationary expectations from an annual rate of 6.7 per cent to 7 per cent between October and November surveys.