‘Weak’ growth expected

Press, 11 December 1989, Page 2

‘Weak’ growth expected

Wellington reporter New Zealand can expect only weak economic growth next year, with the pace of recovery dictated by confidence and interest rate levels, according to the ANZ Bank’s monthly economic newsletter. “The turnaround from the recession period of 1987/88 requires further gentle nurturing,” ANZ’s chief economist, Mr David Ward, writes in the newsletter. “The rekindling of the work ethic and further productivity improvements are necessary if we are to grab the full benefits offered by the new economic framework.”He criticised continuing over-regulation of the

labour market, and aspects of the social welfare system which discouraged people from taking jobs. One risk to economic recovery was the prospect of the Reserve Bank keeping monetary policy too tight and interest rates too high, said Mr Ward. “There is a danger that the tighter fiscal stance achieved by the GST increase will be magnified by continued tight monetary policy, causing a severe erosion in business confidence and activity.” ANZ expected short term interest rates to fall about 1.5 per cent over 1990 to about 12 per cent, while long term rates would fall about 1 per cent to about 11

per cent, with a further 0.5 per cent fall in 1991. However, failure by the Government to eliminate the financial deficit in next year’s Budget, delays in sorting out the DFC collapse, or a reversal in the world trend to lower interest rates could slow this. Overseas experience also showed the dangers of the authorities letting interest rates fall too quickly. There was little prospect of a fast pick-up in employment, with numbers of unemployed expected to be higher as a proportion of the workforce in two years than at the end of last year. But this year was expected to

see unemployment peak, the bank said. ANZ is forecasting inflation of 1.3 per cent for the last three months of this year, with 1990 showing quarterly inflation of about 1 per cent. There was little likelihood of a strong pick-up in consumer demand, since wage round settlements of 4.5 per cent meant workers were taking a cut in living standards this year, with inflation at about 7 per cent. . Mr Ward emphasised the potential benefits to come from economic restructuring, but said people’s economic attitudes were proving slow to catch up with the changes.