Manufacturing continues shrinking; global PMI worsens

Thursday 22nd January 2009

New Zealand manufacturing activity remained in contraction in December on dwindling production and fewer new orders.

Manufacturing climbed 7.3 points to 42.5 last month, seasonally adjusted, from in November, according to the Bank of New Zealand-Business NZ Performance of Manufacturing Index. A reading below 50 indicates a contraction. Manufacturing shrank in nine months of 2008.

The index climbed from a record low in November to the second-lowest level since the survey began in 2002. Prospects for 2009 may be just as grim, with prospects for growth in export markets to stall, dwindling corporate profits and a slump in tourism.

"The dominant issue is fast becoming sagging international demand," said Craig Ebert, markets economist at Bank of New Zealand. "As soon ago as September the view was that the global economy would pretty much soft land," he said. "Just four months down the track and utter collapse is the agreed view."

All of New Zealand's major trading partner economies except Australia, the largest, are forecast to shrink this year, with the U.S. heading for a 1.8% contraction, Japan's at -1.7% and the Eurozone economy at -1.4%. Growth in Australia, which accounts for about a third of New Zealand trade, will drop to 0.9% from 2.5%. The consensus forecasts were included in BNZ's analysis of the PMI.

"The even bigger concern is that the consensus view on global growth for the year is not yet soft enough," with the prospects for the first half of 2009 to be even weaker than the end of 2008, Ebert said.

The JPMorgan Global PMI was at 33.2 last month, the weakest since the composite survey began in 1998. The POMI for the U.S. weakened to 32.4 while the Australian PMI was at 33.7.

Demand for tourism, which accounts for about 10% of New Zealand's economy, may "come to a complete standstill," he said.

Shares of Tourism Holdings, the nation's biggest campervan operator, fell 2.9% to 68 cents and has dropped 50% in the pasty six months.

Of the five seasonally adjusted defusion indexes in the PMI, four showed a contraction in December, according to the report.

Production lifted to 39.9 after falling to 29.3 in November, the first time it had dropped below 30. Employment edged higher to 41.9 from 39.9, new orders picked up to 42.2 from 35, deliveries of raw materials were at 43.7 from 37.2 and finished stocks were at 50.5 from 47.3.

By Jonathan Underhill

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