Gareth Morgan, Director of Gareth Morgan Investments
As 1992 draws to a close and another election year looms in 1993, it’s opportune to reflect on the economy and its likely future.
1992 has seen the beginnings of economic recovery, led by the export sector and supported by a rise in commercial investment, particularly by export-oriented firms. There has also been a rise in consumer demand, although it has been more patchy this year than we expect next. In summary, the economic scorecard having been so poor for so long has been impressive over 1992 with inflation still falling, employment rising again and the rise in unemployment checked. 1993 promises to be a further year of economic recovery with household spending playing a stronger role as employment growth accelerates further.
The negative aspect of this economic recovery is that it is not being shared by all and indeed there is now empirical support for the thesis that the distribution of income is becoming more skewed with the incidence of economic failure for poorer families showing little sign of abating. This distributional negative is clearly generating a political backlash. Until the fruits of the economic recovery reach the lower income groups it is unlikely there will be substantial electoral satisfaction with the economic course.
On the policy front the government’s changes to employment legislation have arguably been the most profound of their policies, although the health reforms will end up being wide reaching as well. Elsewhere policy change has been comparatively marginal and indeed there is a distinct flavour of policy reverse in the area of industrial policy, political timidity in reforming education, and the reversion to make-believe work schemes is symptomatic of a policy vacuum in the labour market. The government has slowed the general pace of reform although has largely kept to the tenet of a market-led economic solution.
Politics has played a significant role in slowing the reforms, with National struggling in the polls at times even though Labour still suffers from a distinct identity crisis, lacking clear policy alternatives and yet to put forward leadership on policy direction. 1992 has confirmed the emergence of the Alliance as a relevant political grouping. It has well enunciated policy alternatives although in the economic area extremely unpalatable to an electorate that while wanting an end to painful reform, isn’t keen on a return to pre 1990 social policy and big tax increases as the Alliance is offering. Their role in next year’s election seems likely to be one of making Labour’s campaign more difficult. Without adoption of a more credible economic alternative the Alliance isn’t likely to threaten National support fatally.
In the last election campaign, Mr Bolger referred to 3% growth and 0-2% inflation as being his party’s objective for 1993. The chances of those goals being fulfilled are high and with it the chances of National’s re-election and New Zealand’s continued commitment to non-inflationary growth sourced in improved international competitiveness are enhanced. These outcomes should enhance the NZ’s international credibility and pave the way for a credit upgrade during the next political term.