Risks outweigh opportunities for manufacturers

Risks outweigh opportunities for manufacturers – 2 December

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The latest New Zealand Manufacturers and Exporters Association (NZMEA) Survey of Business Conditions completed during November 2011, shows total sales in October 2011 decreased 6.33% (export sales increased by 0.68% with domestic sales decreasing 9.84%) on October 2010.

The NZMEA survey sample for October covered NZ$507m in annualised sales, with an export content of 36%.

Net confidence rose to -10, up from the -36 result reported last month.

The current performance index (a combination of profitability and cash flow) is at 103, up from 100 in September, the change index (capacity utilisation, staff levels, orders and inventories) went up to 100 from 98 in the last survey, and the forecast index (investment, sales, profitability and staff) is at 104.25, up on September’s result of 101.5. Anything less than 100 indicates a contraction.

Constraints reported were 70% markets, 20% production capacity and 10% skilled staff.

Staff numbers for October decreased year on year by 4.88%.

“Domestic sales have continued their decline this month while export sales have been flat. A rise in all three indexes suggests things may get brighter, but we may be looking towards the second half of next year before any significant growth in sales is evident,” says NZMEA Chief Executive John Walley.

“The big concern from this survey is the reduction in staff numbers. Firms reducing staff numbers clearly aren’t expecting sales to pick up anytime soon. Confidence has also remained negative for the ninth month out of ten this year.”

“Comments from manufacturers continue to centre on the exchange rate with firms bemoaning its high level and struggling to predict currency movements.”

“Tough market conditions were reported and the gas pipeline problem also restricted sales for those affected. The Canterbury earthquakes are also having a lasting impact with some firms seeing increased sales due to construction projects starting next year while others still have issues with damaged buildings or inadequate rental sites.”

“Europe remains a major problem for firms looking to invest; the possibility of European difficulties causing another global recession, and the resulting lower sales levels, is hitting investment intentions.”

“A new term in Government brings the expectation of some policy changes to assist the tradable sector. Some previously untapped policy ground such as the Reserve Bank Act, taxing capital gains and the superannuation entitlement age surfaced during the election campaign – hopefully we will start to see some cross party support on these issues.”

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