ECONOMIC OUTLOOK.

New Zealand Herald, Volume LXVI, Issue 20391, 21 October 1929, Page 13

ECONOMIC OUTLOOK.

OVERSEAS PRICES DECLINING REACTIONS IN NEW ZEALAND. UNUSUALLY STRONG RESERVES. r The lucent increase in tho London bank rate and its reaction on New Zealand form the subject of the latest bulletin prepared by tho department of economics of Canterbury College and issued by the Canterbury Chamber of Commerce. After reviewing the causes and the immediate effects of the bank rato movement, the bulletin says it inevitable that these monetary changes should react unfavourably on Now Zealand, through the depreciation of prices for our staple products in the overseas markets, owing to restriction of credit, high interest rates, and a reduction of purchasing power. "Already prices have declined considerably for some of our chief exports," tho bulletin continues. "Should they remain low throughout tho export season, and the declino in prices not be compensated by increase in quantity, the effect on tho country is not difficult to estimate. There has beon abundant experience in the past of the effect of falling export prices. . . . Purchasing power throughout the country was contracted, demand and business activity declined, and some measure of depression ensued. Protection Against Setback. "Tho last two good years have strengthened out financial position appreciably. High export values, combined with tho slow recovery of imports, have brought a favourable balance of payments which has been long continued and has produced an unusual abundance of funds in New Zealand. These will provide very useful reserves Bhould the next season's prices prove unfavourable. Any shortage in tho balance of payments duo to rising imports and declining export values may be met partly from reserves held, and partly from the very satisfactory increases»which are occurring in pastoral production, and the movement would have to be exceptionally unfavourable to bring a financial set-back as severe as that of the 1925-26 season. Some decline, however, seems* unavoidable. It has already begun and exchange on London has moved in favour of exporters within tho last few that they are now getting some slight compensation for lower values in better exchango rates.

"But it appears certain that in spite of exchange movements and increases in production our exporters will get appreciably loss for their produce this season than last. This will lessen their purchasing power and their demand for town products. Tho effect may not be felt for many months and in tlib towns perhaps not before next winter. But tho same effects have been produced by tho same causes so often in the past that their connection is unmistakablo. Falling export prices lead to less favourable general conditions throughout New Zealand, _to tightening credit, declining purchasing power, slacker business activity and lessened employment. They can be met only by increasing production; so that the same income is received, from higher production at lower prices, and increased production at lower prices can be effected only if costs per unit of output are lowered."

Above the World Level. Emphasising the opinion that " our greatest economic need is a lower level of costs of production," the bulletin adds that New Zealand's internal prices and cosls of production aro well above the general level of world prices, and since New Zealand must sell and buy in the .world's markets, it must in tho long run produce at prices the world is willing and able to pay. Owing to tho volume and nature of our external trade, New Zealand is particularly sensitive to changes in the prices of staple raw materials, such as wool, which havo varied widely during recent years. Temporary depressions can be met from reserves, and at present our reserves appear stronger than for many years past. 'But permanently lower levfels of prices can bo balanced only by increased production, and it is to tho application of tho fruits of research on farms and in industry, to progressive rationalisation of production and marketing, to moro economical and more effective operations and to all that makes for greater volume of production without increasing real cost that we must look for the solution of our present problems.