The Dominion FRIDAY, JANUARY 3, 1930. THE ECONOMIC OUTLOOK

Dominion, Volume 23, Issue 84, 3 January 1930, Page 8

The Dominion FRIDAY, JANUARY 3, 1930. THE ECONOMIC OUTLOOK

* , The prospects for New Zealand industry and commerce during the coming year can hardly be described as bright. While there is no ground for pessimism, and not the slightest probability of any catastrophic happenings, the indications point unmistakably towards a lower level of exporf prices, higher interest and overdraft rates, and a general recession, or at the best a failure to progress, in business activity generally. * At the present time the world is on a cycle of gradually declining prices. In conformity with this movement, it is probable that the downward tendency which the prices of our principal exports have exhibited during the past year will continue. While import prices are also falling, they are falling more slowly than the export prices upon which the Dominion builds up its credit balance. The consequence is that the gap between the value of our exports and of our imports, which is a rough measure of our available national, surplus, is showing a marked tendency to narrow. This margin, which stood at approximately 12 millions sterling at the 6nd of last March, was reduced to about seven millions sterling by the end of November, and it will narrow still further in the months to come. > Increased exports ’ invariably mean increased imports, but with a lag of several months in responding. It is, therefore, probable that total import values, which have been increasing slowly but at an accelerating rate for the past year, will continue to expand, and that our favourable balance of trade may even be reversed.. As the margin between export and import values contracts, available purchasing power in the Dominion will shrink to a corresponding extent. . Bank balances available for financing industry and commerce will be depleted- The proportion of advances to deposits will increase, and overdraft rates will harden. This is. the usual process by which an adjustment in our balance of trade is effected. At the present time New Zealand has to find somewhere in the neighbourhood of seven millions sterling annually for service of the oversea debt. This can be provided only from our surplus of exports over imports, unless it is directly or indirectly borrowed. ( If this surplus is not, on the average, sufficient to meet our annual inteiest bill, it is difficult to resist the inference that, even allowing for the disturbing effect of borrowing on the balance of trade, at least a portion of our interest liabilities, which should properly be x met from revenue, are being added to our public debt. The present unsatisfactory financial situation in Australia is also bound to exercise a depressing effect on. Dominion conditions. Faced with the necessity of coming to the aid of Federal finance, the Australian banks will find their resources available for the finance of private business materially curtailed. As Australian banks provide approximately two-fifths of the banking facilities in normal use' in New Zealand, we are bound to feel the effect of this policy in reduced accommodation and higher charges. At the other end of the world Britain’s industry and finance are not in a buoyant condition. The buying power of our principal oversea market is thus unlikely to display much, strength, and that constitutes) a further weakness in our export position. In these circumstances there is the ’greatest need for caution in public finance, and a restriction of loan expenditure to the most urgept requirements. The present is certainly no time to embark upon further expensive social services or unnecessary public works. The outlook calls for neither alarm'nor panic, but for prudence and economy. If the Dominion works hard and economises in expenditure,' nationally and individually, it will be able to meet all probable contingencies without undue strain.