Activity Outlook Positive, But Not For Profits

TUESDAY 17 OCTOBER

Activity Outlook Positive, But Not For Profits

“The outlook for manufacturers in terms of business confidence has hardly changed over the last quarter” said David Moloney, President of New Zealand Manufacturers Federation. Mr Moloney was commenting on the latest WestpacTrust Analysis of Business Opinion which is derived from the New Zealand Institute of Economic Research survey of business opinion but also includes the additional category of manufacturers of building products.
“The good news is that manufacturers expect sales to pick up in the December quarter – driven by improved export returns. Moreover, while the Upper North Island showed the greatest drop in activity over the last six months, manufacturers there are now showing the same positive outlook in terms of activity over the next quarter.
“But, because it is not possible to pass on cost increases facing the sector, a net 17% of manufacturers expect business profits to decline in the December quarter. It is this negative outlook for profits that is the main factor in the current negative business outlook.
“Investment intentions now appear to have turned a corner with South Island manufacturers and exporters in general looking to increase investment. With less firms reporting capacity constraints the improvement in investment intentions is very positive.
“Interestingly, exporters feel more able to raise prices due to higher inflation in overseas markets and the weakness of the New Zealand dollar. There are indications that export growth may have softened during the September quarter due to lower demand in Australia following the introduction of GST. If this is the case then export growth should pick up again over the next quarter and this is the expectation of exporters.
“For those selling only on the domestic market, the number of firms increasing prices was equalled by those firms reducing prices. This will be good news for the Reserve Bank because while manufacturers are reporting increasing price intentions domestic price increases look extremely limited. This will give greater comfort to the Reserve Bank in its decision to hold off raising interest rates. “

For further comment contact:

David Moloney 04 388 8355 (bus)

Peter Crawford 04 473-3000 (bus)

A copy of the latest WestpacTrust Quarterly Survey of Business Confidence is available on ManFed’s web-site www.manufacturers.org.nz

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