ECONOMIC CONDITIONS

Taranaki Daily News, 9 December 1931, Page 12

ECONOMIC CONDITIONS

NEW ZEALAND’S POSITION EVIDENCE OF IMPROVEMENT. NEED TO MEET NEW PRICE LEVEL. The improvement in. the Dominions overseas trade balance and. in the banking position are the most favourable features of financial and commercial statistics for the September quarter, which are analysed in the latest bulletin issued by the school of economics of Canterbury College. “The weakest point in the banking situation was passed in the first half of this year, for the September figuree show a marked, improvement over those of June,” says the review. “This appears to be the definite result of the improvement in the balance of overseas trade resulting from the rapid contraction of imports. Should imports remain low, as appears likely, the improvement should continue as the export season develops and may be rapid should export prices rise appreciably.’ The relation between domestic banking returns, overseas trade and exchange is explained in the ’bulletin. It observes that when the actual balance of overseas payments is favourable the excess of deposits over advances in New Zealand improves. Changes in the relation of deposits and advances correspond roughly to changes in the excess of bank liabilities over bank assets held in New 'Zealand and are balanced by corresponding changes in the excess of bank assets over liabilities held overseas. These excess assets held overseas constitute the banks’ reserves for exchange purposes.

EXCHANGE RESERVES OVERSEAS. .

Consequently a (favourable balance of payments means an increase in deposits or decrease in advances in the Dominion, with a corresponding increase in exchange reserves held overseas, and a tendency for lower exchange rates. An unfavourable balance of payments has the reverse effect. It means decreased deposits or increased advances in New a contraction in exchange reserves held overseas, and a tendency toward higher exchange rates. In the former case money will be more plentiful, trade active, and rates of interest will tend to decline in New 'Zealand, while in the latter case, money will be scarcer, trade quieter and rates of interest will tend to increase. . Another passage in the bulletin emphasises the fact that the improvement of the trade balance by reduction of imports is not all clear gain since in view of the reduction in public (borrowing overseas, which is now inevitable, a larger excess of exports must be found in the future than in the past to pay interest, etc., due overseas, amounting to at least £8,000,000 yearly, and in addition, funds will have to be accumulated, overseas to strengthen the reduced exchange reserves held there. Considerations such as these suggest that no immediate increase in imports is to be expected, beyond the usual seasonal variations and further reductions may occur. SHRINKAGE OF INTERNAL TRADE. The bulletin states that the improvement in the banking position is the result of a better overseas trade balance. The internal trade situation has as yet shown no record of similar improvement. Probably the best general indicator of the total of 'business transaction of all kinds within the Dominion is the average of weekly totals of bank debits to all accounts. Comparable statistics for these transactions, for periods of six months from April to September show that in 1930 they averawed 96 per cent, of the volume m 1929 and 71J per cent, this year. In some businesses, transactions have undoubtedly fallen off much more than this, as for instance in building, while in others, meeting a steady and routine demand, the contraction has been substantially Registrations and discharges of mortgages, land transfers and (building permits, covering a large volume of financial transactions, have all fallen more than 50 per cent, since 1929. Building is specially hard hit, and total permits ai e little more than one-fourth what they were two years ago. The severe decline in totalisator investments suggests a heavy contraction in speculation. The fall in railway tonnage carried is severe, about 27 per cent., and probably reflects mainly the general decline in business and. the consequent economy in the use of transport. THE REMEDY FOR DEPRESSION. “The fall in export prices since 1929 has been the main cause of the present depression,” says the bulletin in conclusion. “It brought a direct reduction in the national income of about 20 per cent, and indirectly the reduction of purchasing power may . have been greater. Owing to its contracted, income the community could not buy the same volume of goods and services at the same level of prices, and the consequent enforced economy has affected all trade and industry, some parts to a less degree, some to a greater degree. Our present difficulties of unemployment and of both public and private finance are direct effects of the change ... “The remedy for depression lies in adjusting costs of production to levels at which the whole of our resources of production can be employed in turning out woods and services at prices which the community can afford to pay. When this adjustment, which is already undei way, is complete, industry , will again be profitable, confidence will return, both ■money and goods will circulate more rapidly, and the road to complete recovery of prosperity will be open.”