Business New Zealand is confident things are going to improve for the manufacturing sector as the Christchurch rebuild looks set to get underway.
The BNZ-Business New Zealand Performance of Manufacturing Index fell less than 1 point to a seasonally adjusted 49.4 points in July, the lowest reading for that month in four years.
A reading below 50 indicates the sector is contracting.
New orders and deliveries expanded, while production, finished stocks and employment all declined.
Business New Zealand executive director Catherine Beard, says a lot of manufacturers supply the construction industry and there has been an increase in building-related activity like cement production.
When the Christchurch rebuild gets fully underway, she says a huge amount of money will flow into the economy through insurance and that should flow through the manufacturing sector in a positive way.
Ms Beard says even in July new orders were slightly increased at 52.9, which is a good indicator going forward in the short term.
She says in the medium term things are expected to improve.
Ms Beard says Australia's manufacturing sector has experienced a significant drop in activity which is both good news and bad for New Zealand.
She says on the positive side New Zealand may be able to attract some investment in manufacturing that has become uneconomic in Australia.
But Ms Beard says the downside is that when the Australian economy slows down, it is challenging for New Zealand because Australia is its biggest export market.