The dollar continues to put the brakes on

4 April 2007
IMMEDIATE RELEASE

The dollar continues to put the brakes on

The latest Canterbury Manufacturers’ Association (CMA) Survey of Manufacturers completed during March 2007, shows total sales in February 2007 increased just under 19.5% (export sales were up almost 60% with domestic sales decreasing around 0.14%) on February 2006. A large manufacturer in the marine sector reports “things are moving to a new level”, excellent news, but that aside and more broadly taking into account significant raw material prices increases, the aggregate sales change would have been slightly negative.

The CMA survey sample this month reported NZ$354m in annualised sales, with an export content of 44%.

Net confidence was improved to zero, up from the -17 result reported last month.

The current performance index (a combination of profitability and cash flow) is at 93, down from the previous month’s 98, the change index (capacity utilisation, staff levels, orders and inventories) remained at 100 on the previous month, and the forecast index (investment, sales, profitability and staff) remained at 101 since January. Anything less than 100 indicates a contraction.

Constraints reported 9% production, 18% staff and markets 72%.

Staff numbers for January increased by nearly 4%.

“As mentioned above, if the impact of higher raw material costs and some unusually high numbers in the revenue headlines are eliminated we would have seen a slight sales contraction for February. The dollar hitting highs against the US$ is offset slightly by a more benign rate against the A$ than for the same time last year. This has some importance to manufacturers, as for many, their main offshore markets are to Australia”, says Chief Executive John Walley. “More pressure is expected as interest rate spreads increase”.

“We have heard that exporters are/will get used to a high currency, perhaps, but this is a bit like getting used to a chronic terminal disease - you can deal with it for a for a while but the outcome remains certain. There will be no point in asking about the level of sales activity, confidence or performance at 80 cents because if the dollar hits that point, activity will all but stop”.

“Market entry with a low price has been a clear Chinese strategy, and it now seems that Chinese companies are looking to lift prices as their competition fails. By circumstance or choice, the move to the ‘NZ Inc’ model continues and this has the capability to hollow out the innovation system and supporting supply chains in New Zealand. The system already has many road blocks - HSNO, ERMA and the RMA - yet innovation needs more support and not more and more difficulties and barriers.”

It is hard to get excited about Export Year in the face of what is happening in the broader economy. We wonder when the correction finally comes and the Government deals with what is happening to the tradable sector, if there will be anyone left willing and able to take any advantage of it”.

ENDS

See... Survey of Business Conditions Tables (PDF)

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