Growth continues at snail's pace

Growth continues at snail's pace - 30 July

Historical survey data can be found here.

The latest New Zealand Manufacturers and Exporters Association (NZMEA) Survey of Business Conditions completed during July 2010, shows total sales in June 2010 increased 7.4% (export sales increased by 11% with domestic sales increasing 4%) on June 2009.

The NZMEA survey sample this month covered NZ$574m in annualised sales, with an export content of 42%.

Net confidence plummeted to zero, down from the net plus 50 reported last month.

The current performance index (a combination of profitability and cash flow) is at 99, down from the previous month’s 104.5, the change index (capacity utilisation, staff levels, orders and inventories) went up to 107 from 105.5 last month, and the forecast index (investment, sales, profitability and staff) is at 103, down on the June’s result of 105. Anything less than 100 indicates a contraction.

The reported constraints were: 8% capacity, 17% staff and markets 75%.

Staff numbers for June increased year on year by 2%.

“Some bad news coming out in the economy over the past month has seen confidence in the manufacturing sector drop away quickly despite steady, if slow, growth,” says NZMEA Chief Executive John Walley.

“Comments from manufacturers reflect a patchy trading environment. Some respondents reported that they are now back to 2008 staffing levels.”

“Markets have remained as the major constraint, but some difficulty getting skilled staff is starting to return now that there is some growth in employee numbers again.

“Manufacturers exporting into Australia and the United States reported good trading conditions, but those trading into Europe reported weak demand exacerbated by adverse currency cross-rates. Domestic trade has remained quiet.”

“There was a lot of concern about the damage that the interest rate rises we have seen already and an upward bias on the Official Cash Rate could do to the recovery in the manufacturing sector. There is a danger that hikes in the OCR could send the New Zealand dollar back up to levels where exporters are priced out of markets in the United States and Europe in particular.

“Many respondents indicated that they were unsure what sort of inflationary pressures the Reserve Bank Governor was reacting to because they do not see much strength in the New Zealand economy and do not foresee any major pick up any time soon. Certainly Alan Bollard’s comment that manufacturing confidence is still elevated has been proved wrong by this survey.”

“Comments from those in the real economy have been that the Reserve Bank has moved far too early.”

The Bank of New Zealand’s Economy Watch commented that, “The lows in the external deficit are most probably behind us, in other words. This is a reminder that the economy still has major rebalancing issues on the horizon”.

“It is disappointing to see margins in our tradeable sector being torn to shreds again just when it looked like some rebalancing of the economy was going to occur,” says Mr Walley. A review of the Reserve Bank Act must be an urgent priority for the Government if all the economic rebalancing comments are to be seen as anything more than rhetoric.”

ENDS

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