Uncertainty Still Impacting Investment Decisions

20 December 2000

Uncertainty Still Impacting Investment Decisions (Let’s Not Bring Out All The Good Cheer Quite Yet)

“The Manufacturing sector is in pretty good shape, with the exception of one fairly significant blot on the report card – the continued decline in investment expenditure”, said David Moloney, President of the New Zealand Manufacturers Federation.

“Without a pick-up in investment the current growth levels being experienced cannot be sustained”. Mr Moloney was commenting on the latest WestpacTrust Manufacturing Analysis for the September quarter.

“The latest Analysis shows that investment in plant and equipment in the September quarter was down a significant 7.8% from levels in the September 1999 quarter. This lack of investment can be traced to uncertainty over a variety of factors such as the exchange rate, the potential impact of some Government policies and interest rate levels.

“Capital investment plans, for example, will have been affected by the sharp fall in the New Zealand dollar over the last twelve months. The lower currency will have boosted the price of imported capital equipment. The rise in base lending rates from 8.48% in September 1999 to 10.57% in September 2000 will also have had an impact.

“Profit levels, however, increased strongly at an estimated 12% of total sales in the year ended September 2000, with much of the improvement in the commodity processing sectors. Over the last twelve months the annual profit to sales ratio increased from 5.1% to 10.4% in Forest Based Commodities and from 6.0% to 11.1% in Other Resource Based Commodities.

“The recent rises in employment and hours worked should also help to strengthen demand on the domestic market, despite an apparent increased uncertainty about economic prospects in several of our major trading partners. Real domestic sales in the September quarter were only 0.6% up on September 1999 but should continue to improve over the next 12 months.

“Overall, I think the sector can go into the New Year with confidence but the lack of investment is something where we do need to see a sustained improvement.“

Further comments:

David Moloney telephone 04 388 8355 (bus)
04 479 6230 (pvt)

Simon Carlaw telephone 04 473-3000 (bus)
04 476 7729 (pvt)

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