NZMEA Survey: Room for RBNZ to cut rates

Room for RBNZ to cut rates - 7 March

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The latest New Zealand Manufacturers and Exporters Association (NZMEA) Survey of Business Conditions completed during February 2016, shows total sales in January 2016 decreased 18.58% (year on year export sales decreased by 25.06% with domestic sales decreasing 1.45%) on January 2015.

The NZMEA survey sample this month covered NZ$216m in annualised sales, with an export content of 67%.

Net confidence fell to 12, down from 18 in December.

The current performance index (a combination of profitability and cash flow) is at 99.3, down from 101 last month, the change index (capacity utilisation, staff levels, orders and inventories) was at 97, down from 100 in the last survey, and the forecast index (investment, sales, profitability and staff) is at 102.83, down on the last result of 107.83. Anything over 100 indicates expansion.

Constraints reported were 59% markets, 24% skilled staff, and 18% production capacity.

There was no net change in productivity for January.

Staff numbers for January increased 2.07% year on year.

Tradespersons, supervisors, managers, and professional/scientists reported a moderate shortage and operators/labourers reported a minor shortage.

“There appears to be some struggles showing for manufacturers in terms of export demand, with year-on-year export sales staying negative for four months. This is likely reflecting a continuing uncertain international environment and a number of soft export markets dampening demand. Domestic sales were slightly down, after positive year-on-year increases the last two months.” says NZMEA Chief Executive Dieter Adam.

“In recent months, despite some challenges in export markets and international conditions, confidence and indexes of performance, forecast and change, have been showing positive expectations of the future. However, January results showed the performance index, which includes profitability, cashflow and exchange rate, as well as the change indexes, moving down into contraction. The forecast measure, which has been exceptionally positive in recent months, moved down, but stayed in the positive.

“Exchange rates against our key currencies remain unfavourable, specifically against the Australian Dollar (AUD), which is stubbornly high, far above historical averages. This is a particular concern, given the high levels of manufacturing exports to Australia. Just because the USD cross rate is not as high as it used to be, and because the NZD appears to be resistant against further downward adjustment, doesn’t mean that exchange rates are at a level that would give our exporters a fair fighting chance in international markets. The fundamental structural weaknesses in our economy, and in our economic policies, have yet to be addressed - until that happens our manufacturers remain in a position of disadvantage in international markets.

“There is room for the RBNZ to cut the OCR 10th of March; inflation remains below target and the exchange rate is higher than what the RBNZ forecast in their December Monetary Policy Statement despite continued weakness in dairy prices. The housing market remains a challenge with work to be done, but the RBNZ should act to push back against low inflation expectations and the continued relative strength of our currency."

The New Zealand Manufacturers and Exporters Association survey gathers results from members around New Zealand. It provides a monthly snapshot of manufacturers and exporters’ sales and sentiment.

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