Spring Thaw Expected for Frozen New Zealand Economy

Shivering outside a post office, unemployed “Kiwis” stoically endure bitter Antarctic southerlies as they wait for dole checks.

New Zealand’s record jobless rate is part of the hardship brought on by five years of “Rogernomics”--drastic free-market economic reforms championed by former Finance Minister Roger Douglas.

But coincident with the Austral spring, an economic thaw appears at hand.

“We’ve certainly gone through the worst. We went through a real ditch last year, we’re back up on the other side now. We’re starting to see life,” said Kel Sanderson, director of Business and Economic Research Ltd., a Wellington consulting firm.

Tight monetary policy has hauled inflation down from 16.6% to 4.5%. Now the government is easing a bit on credit. On Aug. 15, for the first time in a year, the Bank of New Zealand trimmed home mortgage rates, from 15.5% to 14.9%. Other banks are following suit.

The balance-of-payments and budget deficits are moving in the right direction. The budget deficit, at 9% of gross domestic product in fiscal 1983-84, has shrunk to 1%. The government is predicting a surplus by June, 1991.

This month’s banner newspaper headlines of a “1990 Recovery” are being welcomed with a collective sigh and budding optimism. “For the first time in many years, New Zealand may be in a position to enter a period of sustainable growth,” said Peter Nicholl, assistant governor at the New Zealand Reserve Bank.

Lower interest rates and strong world commodity prices are fueling the recovery, with 70% of the exports coming from New Zealand’s lush farm sector.

Tourism will get a big boost next year, too. New Zealand will play host to the Commonwealth Games in January, then celebrate its sesquicentennial anniversary, hold a federal election sometime before October, and likely close out the year with the America’s Cup yachting competition.

None of this has been lost on foreign investors. Money has been pouring into the stock market--mostly from Hong Kong and the United States--since David Caygill, the new finance minister, unveiled his first budget last month. The Barclay’s index of New Zealand stocks shot up 15%--the first sign of ebullience in almost two years. Since the crash of October, 1987, this has been one of the worst performing markets in the world.

“There’s really not much fat in the stock prices. It’s going to be a good market,” Sanderson said. He predicts strong growth in the resources sector, especially in forestry companies.

Even this month’s sudden change of prime minister and a new cabinet has been seen as positive rather than disruptive. The 18 months of divisive squabbling over economic policy between former Prime Minister David Lange and Finance Minister Douglas has come to an end.

“New Zealand is better off now without Roger,” said Len Bayliss, a private economist and a board member of Bank of New Zealand. “He did some tremendous things. But everything was a crusade with him.”

Prime Minister Geoffrey Palmer and chief economic policy-maker Caygill are seen as more stable, quieter, team players. And New Zealanders seem to approve. The Labour Party rating has jumped in recent popularity polls.

The Reserve Bank of New Zealand predicts that the gross domestic product will grow by 1% this year and 2.4% in the year to March, 1991.

The modest optimism is tempered by the potential pitfalls. If commodity prices or the economy of Australia (a major importer of New Zealand products) should weaken significantly, growth would slow.

Unemployment, now about 11% of the work force, isn’t expected to decline for at least another year. Deregulation and restructuring have made the manufacturing sector lean and efficient. But factories still have surplus capacity, so it will be some time before more workers are hired.

And ahead lies a round of wage negotiations with labor unions. If the pay hikes or rising food prices are viewed as too inflationary, the government may return to a strategy of tight monetary policy, choking off the recovery.

“We’re really not sure how much influence Roger Douglas will have in pushing anti-inflation policy. There’s still this stated intention of the central reserve bank to head towards 2% to 0% inflation,” Sanderson said.

But if all goes well, he added, “the prospects are there for a massive boom in 1992.” Sanderson, in fact, worries that the economy will overheat. Most Kiwis--especially those queuing for a check--would welcome such a problem.