XN000022-1978-11-16 — Page 3

THURSDAY, NOVEBER 16, 978

1

1979

HE SAID CONSENTS TO DEVELOPERS TO COMMENCE WORK WERE 16 PER CENT HIGHER IN TERMS OF FLOOR AREA IN THE FIRST NINE MONTHS THIS YEAR COMPARED WITH SAME PERIOD LAST YEAR, THE LABOUR AND MATERIAL COST INDEX WAS ACCELERATING AND THE PUBLIC WORKS DEPARTMENT'S TENDER PRICE INDEX HAD BEEN PUSHED UP 23 PER CENT IN THE FIRST NINE MONTHS THIS YEAR BY DEMANDS ON BUILDING AND CONSTRUCTION INDUSTRY, PARTICULARLY IN THE PUBLIC SECTOR.

HE SAID THE PUBLIC SECTOR WAS NOW TAKING ABOUT HALF THE TOTAL OUTPUT OF THE BUILDING AND CONSTRUCTION INDUSTRY, COMPARED WITH 42 PER CENT IN THE FIRST SIX MONTHS OF LAST YEAR AND AN AVERAGE OF 39 PER CENT OVER THE FOUR YEAR PERIOD 1973 TO 1976.

HE SAID AN EXCESS OF DEMAND FOR OVER SUPPLY OF REAL RESOURCES WAS CONTRIBUTING TO THE HIGH GROWTH RATE OF THOSE COMPONENTS OF G.D.P. CATERING FOR DOMESTIC DEMAND, NAMELY, PRIVATE CONSUMPTION EXPENDITURE, GOVERNMENT CONSUMPTION EXPENDITURE AND GROSS DOMESTIC FIXED CAPITAL FORMATION.

+HOWEVER, WITH THE ECONOMY AS A WHOLE ENJOYING DOUBLE-DIGIT GROWTH FOR THE THIRD YEAR RUNNING, IT IS INESCAPABLE THAT THE RELATIVELY HIGHER GROWTH RATES IN THOSE SECTORS MUST SLOW DOWN SO THAT RESOURCES CAN BE MADE AVAILABLE TO THE EXPORT SECTOR AND THE SEVERITY OF THE ADVERSE TRADE BALANCE (LIKELY TO BE OF THE ORDER OF $7 BILLION IN 1978) CAN BE DIMINISHED, + HE SAID.

HE SAID THAT FOR AS LONG AS INTEREST RATES REMAINED RELATIVELY LOW AND THE BANKS AND DEPOSITS-TAK ING COMPANIES CONTINUED TO ACCOMMODATE THE DEMAND FOR LOANS, THE EXCESSIVE GROWTH RATE OF DOMESTIC DEMAND WAS BEING ENCOURAGED.

+ IT IS IN THIS CONTEXT THAT THE GROWTH OF THE MONEY SUPPLY HAS BEEN SUCH A MATTER OF CONCERN IN RECENT WEEKS,+ HE ADDED.

MR. HADDON-CAVE SAID THE GROWTH RATE OF THE MONEY SUPPLY OF WHICH THE BROADER DEFINITION INCLUDES CURRENCY IN CIRCULATION AND ALL BANK DEPOSITS IN THE HANDS OF THE PUBLIC RECENTLY HAD BEEN SO FAST AS TO INDICATE AN EXCESSIVE GROWTH RATE OF DOMESTIC DEMAND.

FOR EXAMPLE, HE SAID, IN THE THREE MONTHS ENDING SEPTEMBER 30 THIS YEAR, COMPARED WITH THE THREE MONTHS ENDING JUNE 30, THE GROWTH RATE OF BANK LOANS TO MANUFACTURING FELL FROM 14.4 PER CENT TO 1.6 PER CENT, BUT IT INCREASED FROM 5.3 PER CENT TO 11.4 PER CENT FOR TRANSPORT AND TRANSPORT EQUIPMENT, FROM 14.1 PER CENT TO 20.6 PER CENT FOR BUILDING AND CONSTRUCTION AND FROM FIVE PER CENT TO 12.2 PER CENT TO INDIVIDUALS FOR PRIVATE AND BUSINESS PURPOSES WHICH OBVIOUSLY IN PART FOR SPECULATIVE ACTIVITIES IN THE STOCK AND PROPERTY MARKETS.

MR. HADDON-CAVE NOTED THAT THE BEST LENDING INTEREST PATES WERE ADJUSTED UPWARDS FOUR TIMES THIS YEAR AND THESE HIGHER INTEREST RATES WERE CONSISTENT WITH THE REQUIREMENT OF THIS DEVELOPMENT SITUATION.