"Play a straight bat with soft hands", says BERL

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“Play a straight bat with soft hands”, say BERL forecasters

Advice contained in the latest issue of BERL Forecasts released today is to “maintain a conservative approach, exploit past experiences but don’t reject any prudent new opportunities where they present themselves”.

BERL director Kel Sanderson admitted that the global situation is not the greatest as he commented, “yes, it’s a damp, soft pitch taking turn and erratic bounce, but the trick is to play a straight bat with soft hands to absorb the shocks”. He added that despite the the present global situation “the buoyant NZ economy remains underpinned by robust employment and income growth, increasing inflows of migrants’ skills and regional economic organisations pro-actively pursuing development objectives.”

BERL Forecasts Editor Ganesh Nana noted, “the ‘coincidence of positives’ we highlighted earlier this year continue to make their presence felt. These include a robust net migration inflow, solid employment growth, absence of inflationary pressures, a sound fiscal position and development policies and initiatives underway in many regions.”

The most striking positive influences identified by the BERL economists are within labour market. In particular, job numbers in September 2002 confirm that NZ has experienced four-and-a-half years of uninterrupted employment expansion. There are now over 150,000 more jobs than September 1998.

Furthermore, prospects for strong employment demand continues with, as Kel Sanderson stressed, “labour supply continuing to come from retention of people already working, particularly older ones; attracting people back into the labour force; and attracting people into, or back into, NZ.” BERL forecasts annual employment growth of 50,000 to 60,000 underpinning an economic (GDP) growth rate in the 3.5% pa to 4% pa range.

As to the longer term, this growth can readily be boosted to exceed 4% pa if emphasis shifts to investment in physical capital and training to increase the productivity of the expanded workforce. In other words, Dr Nana concluded, “its the second day of a 10-day test, so now is not the time to get overly excited about anything - either negative or positive”.

Summary and Assessment sections (page 3 from December 2002 BERL Forecasts) follow.

THE PICTURE

December 2002

The NZ economy continues to enjoy a period of steady growth despite the global uncertainty of the past 18-24 months. The ‘coincidence of positives’ described in recent BERL Forecasts remains present as buoyant activity is underpinned by robust employment and income growth, increasing inflows of migrants’ skills and regional economic organisations pro-actively pursuing development objectives.

The past three months has seen a marginally positive change in US sentiment - as share prices recover some lost ground and employment growth returns and shores-up US consumer spending. Another aspect of a potentially ‘ugly’ economic scenario - global uncertainty surrounding Middle East tensions - however, continues to cast its shadow onto the overall outlook.

Amongst the factors tending towards a ‘good’ scenario, the labour supply response has shifted to be even more promising, as has general labour market conditions. In particular, job numbers are some 50,000 higher than 12 months ago - signalling four-and-a-half years of uninterrupted employment expansion.
The prospect continues for strong employment demand across most sectors in the economy, with the labour supply coming from retention of people already working, particularly older ones; attracting people in New Zealand back into the labour force; and attracting people into, or back into New Zealand.

We forecast annual employment growth remaining in the 50,000 to 60,000 range. This continuing strong growth will underpin an economic growth rate which can readily be boosted to exceed 4% pa if emphasis shifts to investment in physical capital and training to increase the productivity of the expanded workforce.

Consequently expenditure GDP growth in the March 2003 year of 3.5%, rises to 3.7% and then 4% pa in the following two March years. On the supply side, the employment expansion near 3%pa is coupled with capital stock growth of around 2.5% - and total factor productivity growth nearing the 1% pa mark.

NZ’s interest rates are now quite out of line with world rates. In particular NZ’s 90-day rates are 100-basis points above those of Australia and it is a one-way bet for speculative money - a high rate of return with little risk of forex loss. We see no clear reason why NZ business should be so disadvantaged. We therefore expect a gradual realignment allowing for a ‘drift’ down in rates, with the NZ 90-day rate closer to 5.6% by end-2003. This expectation stems the recent rise in the NZ$ - with the Kiwi finishing 2003 at 84.5 Australian and 48.5 US cents.

ENDS

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