Interest Rates Must Be Cut As Economy Stagnates

Reserve Bank Governor Don Brash will drop interest rates again tomorrow if he's reading the same market signals as the rest of us, says the Employers & Manufacturers Association (Northern).

"Despite a record number of tourists coming here the domestic economy is in recession and trending further down, said Alasdair Thompson, EMA's chief executive.

"From here on, as the ANZ Commodity Price Index out today indicates, export growth of our agricultural goods will not make up for shrinking demand on the local market.

"Instead of export led growth, the zero GDP figure for the March quarter out last week showed the economy is stagnating. Manufacturing sales on the domestic market, excluding primary product processing, were 1.5 per cent lower compared to the same quarter a year earlier.

"Dr Brash should let interest rates fall by 0.5 per cent if he is to follow his express wish of letting consumer demand expand or shrink at the same pace as change in economic activitity.

"The cause of falling demand on the domestic market is due to higher import prices which has shifted consumers discretionary spend away from home related durables.

"This has resulted in steep falls in many associated industries. For example, for the year to March, manufacturers sales of furniture on the local market were down 21 per cent on a year ago, non-metallic minerals (cement) was 14 per cent lower, timber production was down 14 per cent, and textiles down 34 per cent.

"These falls occurred at the same time as imports from China went up 30 per cent over the past year to top $2 billion, in spite of the low exchange rate.

"In spite of the large number of tourists too, the volume of retail sales moved up only 0.6 per cent for the March quarter and 0.8 per cent in the December quarter last year.

"World prices for meat, dairy and other food are doing Dr Brash's inflation fighting job for him, just as the price of petrol did last year."

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