Manufacturing activity plumbs new low, output tumbles

Thursday 11th December 2008

New Zealand manufacturing activity sank to a new record low in November, marking the seventh straight month of contraction as production tumbled.

Manufacturing fell 7.9 points to 35.4 last month, seasonally adjusted, from 43.5 in October, according to the Bank of New Zealand-Business NZ Performance of Manufacturing Index. A reading below 50 indicates a contraction. Production tumbled to 29.3, the first time it has fallen below 30.

The figures show New Zealand's economy is entering the "second stage" of recession, driven by weakening demand in export markets, lower commodity prices, a drop-off in tourism and dwindling disposable income growth, according to BNZ head of research Stephen Toplis.

"This is a worst of all worlds scenario for the domestic manufacturing sector." Toplis said. "Not only are exports being clobbered by falling global demand but the reduction in local spending and plant and machinery investment are dealing additional blows," he said.

World growth is slumping as the world's biggest economies move into recession, the first such line-up since WWII. Softening the blow locally has been the benefit of income tax cuts, falling fuel prices, declining interest rates, a weaker currency and increased government spending on infrastructure, Toplis said.

He predicts 2009 will be "at least as difficult as 2008" with annual GDP growth expected to be unchanged at 0.6%. "Normality" may return in 2010, when BNZ is forecasting economic growth of 3.6%.

Among the five diffusion indexes, employment was at 39.9, news orders were at 35, deliveries of raw materials at 37.2 and finished stocks at 47.3.

By Jonathan Underhill

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