14 Sep 2008

Manufacturing in decline for fourth consecutive month

11:18 am on 14 September 2008

Manufacturing activity has shrunk again, and low numbers of new orders means there is unlikely to be a recovery for some months.

The Bank of New Zealand/Business New Zealand performance of manufacturing index stood at 45.7 in August, three points down from July.

A reading above 50 indicates manufacturing is expanding.

The index shows the economic squeeze has hit the sector for four consecutive months, equalling the longest period of decline in 2006.

Business New Zealand chief executive Phil O'Reilly is concerned a continued contraction in new orders will keep manufacturing in decline.

He says as the dollar, interest rates and fuel costs all move downwards, the sector will eventually return to a period of growth, but in the mean time the decline will continue for a few months.

Bank of New Zealand head of research Stephen Toplis also says the domestic economy, including the construction sector, is not going to recover particularly quickly.

"When you look at the manufacturing exporters, our trading partners look under increasing duress, and so while the currency has moved favourably for us, the demand profile is weakening. I think they're in for a bit of a testing time."

Stephen Toplis says the Reserve Bank's cut in the official cash rate on 11 September by half a percentage point to 7.5% will not rescue manufacturing from its decline.