MARCH 2000 WESTPACTRUST BUSINESS OPINION SURVEY
This Bulletin summarises information from the WestpacTrust quarterly survey of manufacturers opinion prepared for the
Manufacturers Federation by the New Zealand Institute for Economic research (NZIER).
The survey is based upon the NZIER’s Quarterly Survey of Business Opinion (QSBO) – but includes all manufacturers -
whereas the QSBO puts manufacturers of building products into a separate category. The WestpacTrust analysis also
provides details on the size of firms, broad regional location, and distinguishes between exporting/non-exporting firms.
Manufacturing business confidence deteriorated sharply in the March quarter with a net balance of 3% of firms expecting
deterioration in business conditions over the next six months. This compares with a net 20% of firms in December
expecting an improvement in business conditions. Business confidence has been declining since reaching a peak in March
There has normally been a close correlation between profit expectations for the next quarter and business conditions
over the next six months. However, in the March survey profit expectations improved slightly while confidence
deteriorated. Other surveys show the exchange rate remains the main concern for manufacturers, but the industrial
relations environment is also becoming a greater concern. There is already some anecdotal evidence of greater union
activity in advance of the Employment Relations Act.
The survey continues to provide mixed indications on the outlook for the sector and the economy, although some trends
have become more positive.
Investment intentions have finally improved, with a net 22% of manufacturers expecting to spend more on plant and
machinery over the next 12 months. With 16% of firms reporting lack of capacity as a constraint on sales (17% in
December) this improvement in investment intentions is very timely. The positive balance is the highest since December
Investment intentions are stronger among exporters, with a net 24% planning to spend more on plant and machinery. A net
17% of non-exporters plan to invest more.
Export Growth Maintains Activity Outlook
The survey shows that exporters achieved better output growth in the March Quarter than they had expected. A net 26% now
anticipate an improvement in output in the June quarter, an improvement on expectations for the March quarter. Export
expectations have improved from a net 28% expecting an increase in sales in the previous quarter to a net 37% expecting
an increase in the latest quarter.
The performance of smaller exporters has improved significantly with a net 31% reporting an increase in exports in the
March quarter (compared with 23% in December and 4% in September). These smaller companies appear to be much more
sensitive to the level of the exchange rate with Australia, which was weak during the last quarter.
Domestic Activity Weakens
Rising interest rates and continuing strong growth in the level of imports appear to have already impacted on domestic
sales by manufacturers. A net 12% of firms reported an increase in domestic sales in the March quarter compared with 32%
in the December quarter. Expectations have weakened with a net 9% of firms anticipating an increase in domestic sales in
the June quarter.
Profit Levels Remain Strong
Profit levels remain strong with a net 5% of firms reporting an increase in profits in the March quarter and 21%
expecting an improvement in profits in the June quarter.
While cost pressures have increased, with a net 18% reporting an increase in costs in the March quarter, strong
productivity growth has helped firms to offset some of the increase in costs. A net 25% of firms reported an increase in
productivity in the March quarter and there was a small increase in the percentage expecting an increase in the June
Employment Expected to Fall
The strong productivity growth and the slow down in the domestic market growth (which still accounts for 63% of total
sales) are expected to result in a fall in employment in the June quarter. A net 6% of exporters plan to increase
employment, but this is more than offset by a net 29% of non-exporters planning to reduce employment in the June
Domestic Price Pressures Remain Weak
A net 17% of manufacturers increased their prices in the March quarter, a significant increase from the 6% recorded in
June. On the domestic market a net 11% of non-exporters reported a rise in prices in the March quarter, while just 7%
anticipate to be able to increase prices in the June quarter. In contrast, a net 24% of exporters expect to raise prices
in the June quarter.
Stock Control Remains Good
Manufacturers have been able to maintain good control over stocks, with both raw material and finished goods stocks
reduced in line with expectations in the March quarter. With sales continuing to grow and stocks falling it is
anticipated official statistics will show the stock/sales ratio at historical low levels.
However, despite this achievement there is an increase in the percentage of firms planning to reduce stocks in the June
quarter. A net 9% of manufacturers plan to reduce raw material stocks, while a net 12% plan to reduce finished goods
stock levels. This will have some impact on reducing demand from other manufacturers, contributing to the expected slow
down in the domestic market.