Export and Manufacturing recovery – not yet

2 October 2009

Export and Manufacturing recovery – not yet.

The latest New Zealand Manufacturers and Exporters Association (NZMEA) Survey of Business Conditions completed during September 2009, shows total sales in August 2009 decreased 26% (export sales decreased by 43% with domestic sales decreasing 8%) on August 2008.

The NZMEA survey sample this month covered NZ$485m in annualised sales, with an export content of 40%.

Net confidence fell to -27, down from the -17 result reported last month.

The current performance index (a combination of profitability and cash flow) is at 96, up from the previous month’s 95, the change index (capacity utilisation, staff levels, orders and inventories) went up to 101 from 97 last month, and the forecast index (investment, sales, profitability and staff) is at 97.3, down on the previous month’s result of 98.5.  Anything less than 100 indicates a contraction.

The reported constraints were: 9% production, 9% capital and markets 82%.

Staff numbers for August decreased year on year by 21%.

“The pace of decline slowed in August, and there are pockets of demand starting to develop for some products.  Overall we are yet to see any major lift in demand across the sector,” says NZMEA Chief Executive John Walley.

“Uncertainty remains the dominant feeling among manufacturers and exporters.  There are reports that the economy is improving but so far there has been little improvement in conditions for those in the tradeable sector.”

“There is a fundamental disconnect between the confidence which has fuelled the dollar and falling export returns.  News of a tiny rise in Gross Domestic Product in the second quarter, a lower balance of payments deficit and an improved Fonterra payout forecast have driven the dollar higher.  However, underlying the headlines was a drop in exports of $771 million and continued decline in the manufacturing and construction sectors.”

“We will see small pockets of the economy succeeding so long as their prices continue to hold, but the widespread recovery needed to get employment levels up and improve our relative wealth remains elusive.  Our view is the economy is likely to scrape along the bottom for a while yet and things could turn really ugly early next year.”

“Unless we see a more realistic exchange rate sustained for some time it is difficult to expect any widespread investment or capacity expansion in New Zealand from exporters.  Currently the margins are simply not large enough, or the medium term outlook strong enough, to justify investment.”

“The Government and the Reserve Bank continue to talk about the damage that a high dollar is doing to the economy; it is time to do something about monetary policy.  A credit volume control mechanism needs to be added to the Official Cash Rate so that when the time comes the Reserve Bank response to inflation in the domestic economy does not further drive up the dollar and do yet more damage to the tradeable economy.  Before that happens, action to reduce the strength of the dollar through a mix of rate cuts, currency interventions and, if necessary, quantitative easing is needed.”

 
ends

© Scoop Media