KEY POINTS:
A senior economist with independent think tank Berl is questioning whether New Zealand's present "inflation-constrained" economy is that much different from the "foreign-exchange-constrained" one of 50 years ago.
Ganesh Nana uses the release today of the latest edition of Berl (Business and Economic Research) Forecasts as an opportunity to look back half a century to the first issue in November 1957.
The key mechanism then to control the economy was import controls in a country operating under the shadow of a critical foreign exchange shortage, he said.
Now the needs of the country's export sector were being sacrificed in order to meet a pre-specified inflation target.
Nana, also the editor of Berl Forecasts, said he was comparing the current economy with that of 50 years ago "because it appears to me that suppression of demand continues to be the paramount goal of economic management".
To win the battle against inflation this country now had some of the highest interest rates in the OECD, putting the country "perilously close to admitting defeat in the war against inflation".
It suggested to him that New Zealand had given up on businesses, enterprises and workers delivering the investment and productivity improvements needed to fight inflation, Nana said.
The primary instrument in the war against inflation, and in the accumulation of wealth and wellbeing, remained the generation and maintenance of competitiveness and productivity gains.
Such gains would only result if the country invested significant resources to build and maintain the social, physical, human and intellectual infrastructure needed for a first world economy.
"I suggest this requires leadership, not economic management," Nana said.
The prospect of the needed investments being made with current interest rates was not bright.
"And the prospect of the required leadership is similarly not bright, if the best we can come up with is to label 2007 as Export Year."
In its forecasts, Berl is picking that growth in economic activity has passed the lowest point of the present cycle and is on the upswing.
But business investment appeared to have peaked with indications that non-residential building consents, spending on farm improvements and imports of machinery and equipment were on the slide, Berl said.
The Reserve Bank's decision this month to raise interest rates, with suggestions more hikes may be on the way, had put paid to any hope that the stall in business investment growth was transitory.
The forecast pattern of growth now rested on two, "somewhat shaky", pillars - public sector investment and exports.
Exports were expected to contribute solidly to growth in the short term, before reverting to more modest growth, Berl said.
Forecast public sector investment growth continued strongly for longer, essentially due to announced and committed plans.
But the risk was that cost escalation in the construction sector would cause project managers and officials to take fright and scale back or delay plans.
- NZPA
