'Wake up to the knowledge economy'

By Rob Hosking

Friday 31st March 2000

Business confidence is leaping ahead and the latest economic statistics make surprisingly good reading. But a study of New Zealand's readiness for the knowledge economy released this week provides a wake-up call.

The National Bank's business confidence survey, released this morning, shows an improvement in mood, with optimists outnumbering pessimists by 27%, up from 21% last month.

That survey was taken before the growth figures released on Monday, which showed GDP rose 2.2% for the last three months of 1999. This was double the average market expectations and the growth seems to have been spread across most sectors. Manufacturing showed the largest increase (4.9%) but other large contributors were transport and communications, agriculture, construction, wholesale and retail.

And although the Friday current account figure saw a rise in the deficit to slightly above 8% of GDP, this was largely expected.

However, the latest growth figures suggest the economy is overheating, according to several bank economists.

"Using governor Brash's familiar analogy, the time has arrived to not only ease off the accelerator but begin to gently apply the brake," Deutsche Bank chief economist Ulf Schoefisch said.

On Wednesday Dr Brash appeared to confirm he was likely to do just that, telling reporters at Parliament interest rate rises this year could be higher than those already projected.

"The whole market can see there's more work for monetary policy to do in the next few months than perhaps seemed likely a month ago," he said. He would not comment on how much tightening might be needed.

The other economic good news this week was the decision by Standard & Poor's to hold off any credit-rating downgrade.

The decision was couched in highly cautionary terms and the ratings agency is keeping New Zealand on a negative watch - possibly until after the Budget in June.

Meanwhile, New Zealanders should not take the present cyclical upturn as a sign that happy days are here again, warns a report compiled by the Association of Crown research institutes, in conjunction with the Information Technology Association and Federated Farmers.

The country's economy is poorly equipped to make use of the information revolution, the study concludes. The present high standard of living and the continued reliance on commodity-based exports is an anomaly, it says.

The study advocates an integrated approach, combining tax breaks for research and development and renewed vigour in reducing regulatory burdens on business with a radical shake-up of the tertiary education sector.

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