10 Dec 2013

Manufacturing recovery expected to continue

7:17 am on 10 December 2013

The manufacturing sector is expected to continue a gradual recovery despite the high New Zealand dollar hurting exporters.

Official figures show the volume of manufacturing sales rose 0.5% in the three months to the end of September compared with the previous quarter, despite a 2.7% fall in meat and dairy product manufacturing.

ANZ senior economist Mark Smith said manufacturers working in the construction sector were in a sweet spot but the strength of the dollar was hurting manufacturers who exported their goods to Australia.

"In terms of tail winds, obviously the $40 billion Canterbury rebuild is now flowing through and supporting the wider manufacturing sector, as well as a strengthening construction sector as well," Mr Smith said.

"Having said that, there are some pretty sizeable headwinds facing the sector."

That included a high dollar, particularly against the Australian.

"Previously it had been a bit of a support. Now it's moving well above the 90 cents zone, and that's becoming very difficult for manufacturing exporters here targetting the Australian market," Mr Smith said.

Manufacturing would continue to recover in the December quarter but was still well below previous peaks, he said.

Excluding meat and diary, manufacturing volumes picked up 2.8% in the quarter and Mr Smith said that underlying strength would provide a boost to third quarter economic growth.

Mr Smith predicted a solid third quarter result for overall gross domestic product of 1-1.5%, which he said would be a strong result compared with what was happening in the rest of the world.