Sales fall and currency continues to impact confidence

8 August 2011

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The latest New Zealand Manufacturers and Exporters Association (NZMEA) Survey of Business Conditions completed during July 2011, shows total sales in June 2011 decreased 9.6% (export sales decreased by 17.3% with domestic sales decreasing 2%) on June 2010.

The NZMEA survey sample this month covered NZ$338m in annualised sales, with an export content of 45%

Net confidence declined to -38, down from the -33 result reported last month.

The current performance index (a combination of profitability and cash flow) is at 93, down from 102 in May, the change index (capacity utilisation, staff levels, orders and inventories) remained steady at 102, and the forecast index (investment, sales, profitability and staff) is at 99.75, down on May’s result of 101.75. Anything less than 100 indicates a contraction.

Constraints reported were 63% markets, 25% production capacity and 13% capital.

Staff numbers for June increased year on year by 3.34%.

“The surging New Zealand Dollar has started to have a major impact on sentiment,” says NZMEA Chief Executive John Walley. “Sales are down and returns are suffering so it is no surprise that the current performance index, the forecast index and the confidence rating are all heading south.”

“The message was unanimous from respondents that the unprecedented high dollar is completely unwelcome. We can see sales falling at the same time as capacity constraints are identified; throughput capacity was cut in the face of the Global Financial Crisis and it is unlikely to be expanded under current circumstances. In fact hard won offshore markets might well be abandoned.”

“There are considerable concerns over the global economic outlook in Europe and the USA. This and the prospect of higher interest rates and a higher exchange rate through hikes in the Official Cash Rate, delivered by our policy settings, are also contributors to the drops in confidence and forecasts.”

“Working through what are hopefully post earthquake issues around insurance and damage remediation continue to be a major distraction for Canterbury respondents, but there have been some reports that business lost in March has been recovered in the last month or so.”

“Action on the policy framework to deliver a lower and more stable exchange rate remains the major issue for manufacturing exporters leading into the election. Our current policy settings carry for New Zealand a highly indebted future with little prospect of being able to earn our way out of trouble.”

“A balanced economy will not happen without a major change to New Zealand’s policy settings.”

ENDS

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