Survey of Business Conditions: two economy problem

5 September 2007
IMMEDIATE RELEASE

The two economy problem

The latest Canterbury Manufacturers’ Association (CMA) Survey of Manufacturers completed during August 2007, shows total sales in July 2007 down by just under
3.9% (export sales dropped just below 2.5% with domestic sales down just over 5%) on July 2006.

The CMA survey sample this month reported NZ$361m in annualised sales, with an export content of 47%.

Net confidence recorded a dismal -60, a significant decrease from the June 07 result, which was -17, the lowest level since January 1996.

The current performance index (a combination of profitability and cash flow) is at 96, up from the previous month’s 95.5, the change index (capacity utilisation, staff levels, orders and inventories) dropped to 102 from 103 on the previous month, and the forecast index (investment, sales, profitability and staff) dropped to 99 from 102 recorded in June. Anything less than 100 indicates a contraction.

Constraints reported 10% production, 10% staff and markets 80%.

Staff numbers for July increased 7.4% year on year.

“This month’s survey was completed in the turmoil of the credit crunch and the knock on to the NZ dollar, which brought the hope of some relief to exporters. The events confirmed, if any was needed, the absence of real value of the NZ dollar at current levels, so much for the fair value debate. The dollar is now back over USD 70cents, which is better than 80cents, but still at a level that returns little to most exporters”, says Chief Executive John Walley.

“Those respondents with a domestic focus, especially construction, are still performing well and they remain optimistic, and some are already casting an eye towards the 2011 Rugby World Cup and the flow on affect that event will have on sports infrastructure spending”.

“For exporters, pressure on margins (margin what margin?) remain. Some report that pricing has been adjusted to take cost changes into consideration; others report that they are working harder to push sales volumes to keep profitability at budget levels. There remains a process of strategic rationalisation within the high tech sectors and the relocation of more Fisher and Paykel production to Thailand, citing the dollar and trade pressure, is another major loss to New Zealand. The loss of top tier companies will have a long lasting and negative impact on capability development and sustainability of complex supply chains”.

“It may be some time before New Zealand feels the full impact of the global credit tightening, but the events of the past month indicate how quickly things can change. New Zealand is now heavily dependent on offshore borrowing, as we consistently buy more and sell less, as demonstrated by our ever growing current account deficit”.

“Confidence has dropped sharply, the lowest level we have recorded in the past four and a half years, based on the persistence of the two economies problem and absence of any effective political action to resolve the issue”.

“Living on global credit has had its ups, but when the liquidity taps are closed, the downs are unlikely to be much fun”.

“I think the most frightening thing I hear from talking to manufacturers and exporters is that for a generation some have never had it so good, while others have never seen it so bad. There has to be a better way to run an economy”.

ENDS

See... Survey Results (PDF)

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