Economic stability has labour market buzzing

New Zealand's labour market has emerged the winner from the country's stable economic growth in the past three years, says independent economic group Berl.

Managing director Kel Sanderson said in the group's quarterly forecast, released today, that the labour force could reasonably grow by about 2.5 per cent a year, and probably at least by 1 per cent.

The creation of between 40,000 and 50,000 jobs a year in the past three years had encouraged more people, particularly Polynesian and older people, to return to work.

It had also encouraged the higher-skilled and those with technical skills to stay in or return to New Zealand, he said.

"These changes in job patterns, as well as the migration inflow, together with the net natural increase, could continue to expand the labour force by about 2.5 per cent per year.

"With this level of resource renewal and revival, it is not too much to hope in a reasonably smart economy that labour productivity will be improving by at least 1 per cent per annum - probably more."

New Zealand's unemployment rate dipped to a 14-year low in the June quarter.

Berl picked steady growth in gross domestic product (GDP) from 3.5 per cent in the year to next March to 4 per cent in the March 2005 year.

In June, Berl forecast 3.2 per cent growth next year, rising to 3.3 per cent in 2004 and 3.5 per cent in 2005, assuming the official cash rate would not rise to 6.5 per cent next year as previously indicated.

"The positives surrounding the migration inflow, a competitive exchange rate, three consecutive years of solid employment growth, benign inflation, sound government accounts and regional development initiatives remain," Sanderson said.

"The primary negatives continue to be on the global front, although the soundness of the Australian economy and continued growth in South Korea, China, Taiwan and others in the area do signal that all is not as bad as could be."

Continued revenue growth ensured that the Government's rise in income would more than cover the planned pre-funding of NZ superannuation, along with higher spending in health and training/education.

Berl suggested the Government use the growing surplus to cut $1.3 billion from taxation revenue in 2004-2005, either by pegging GST back to 10 per cent, or a mix of lower company and personal tax rates.

That would still allow the Government to stay $2 billion in the black.

Berl has previously called for relaxation of the inflation target to allow for greater growth, arguing that an overly tight monetary policy prevents the increases in capacity that should be achieved, constraining productivity increases.

Under Finance Minister Michael Cullen and former Reserve Bank Governor Don Brash, inflation was kept within a 0-3 per cent band.

New Reserve Bank Governor Alan Bollard and Cullen are expected to negotiate a new agreement within the next few weeks, picked by some economists to be within a 1-3 per cent band.

Despite the generally positive forecast, Berl warned that New Zealand would not be insulated against a worst-case scenario whereby world uncertainties and hostilities conspired to shatter global investor confidence, leading to a prolonged period in the economic doldrums.

A net 16 per cent of business leaders expected conditions in their own businesses to improve over the next 12 months, the lowest level since October 2000.

The Reserve Bank releases its decision on the official cash rate, now 5.75 per cent, on October 2.

- NZPA