NEW ZEALAND ECONOMY FORECAST TO IMPROVE IN 1987/88
New Zealand's inflation and interest
rates should decline and the balance of payments improve
significantly in the fiscal year to the end of March 1988, the
Institute of Economic Research (NZIER) said.
    The independent institute said in its quarterly March issue
that it was also revising its fiscal 1987 real gross domestic
product (GDP) forecast to a fall of 0.5 pct against the one pct
drop forecast in December.
    Government figures show GDP grew at an annual 1.8 pct in
the quarter to September and 3.4 pct in the June quarter.
    The NZIER said the sharp improvement in the June and
September quarters was due mainly to a new tax structure and
the introduction of a 10 pct value-added goods and services tax
and is not expected to continue in the second half of 1986/87.
    The government's tight fiscal position is not expected to
change, it said.
    Annual inflation, measured by the consumer price index, is
forecast to fall to nine pct by next March from 18.2 pct in
calendar 1986, it said.
    "Falling inflation is likely to give significant scope for
reductions in nominal interest rates; real interest rates are
also expected to ease (albeit slightly) as the balance of
payments deficit and hence the call on overseas capital, falls
away," the NZIER said.
    Short-term interest rates are forecast to remain between 20
and 25 pct until the June quarter, but will decline over the
second half of 1987/88 to between 16 and 18 pct. Long-term
rates are expected to fall to between 14 and 16 pct.
    Five year government bond rates are currently 18.40 pct and
the key indicator 30-day bank bills 26.53 pct.
    The local dollar is expected to depreciate steadily in the
early part of the coming year and, by next March, reach 57.5 on
the Reserve Bank's trade weighted index, which is based on a
basket of currencies. The index now stands at around 66.4.
    "A marked improvement in the balance of payments is
forecast," the NZIER said. "The current account deficit is
expected to fall from 7.5 pct of GDP in 1985/86 to 4.5 pct in
1986/87 and 2.5 pct in 1987/88."
    The current account deficit is forecast to shrink to 1.32
billion N.Z. Dlrs in 1987/88 from 2.40 billion in 1986/87 and
3.33 billion in 1985/86.
    The 1987/88 budget deficit is forecast to be 2.8 billion
dlrs against an expected 2.9 billion dlrs in 1986/87 and 1.87
billion in 1985/86.
    This compares with the government's 1986/87 deficit figure
of 2.92 billion against an earlier forecast of 2.45 billion.
    "Conditions in the coming year are sufficiently subdued to
contribute to marked improvements in both the balance of
payments and the rate of inflation ...," the NZIER said.
    "Overall, these are significant gains for the New Zealand
economy and, if they continue to be improved upon, bode well
for future prospects."
 REUTER
