NZ manufacturers avoid worst of high dollar

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New Zealand manufacturers are so far avoiding the worst impacts of a high kiwi dollar and the European debt crisis, with new orders and deliveries rising in the June Performance of Manufacturing Index, published monthly by Business New Zealand.

However, conditions across the sector are mixed, with signs that inventories are being tightly controlled, employment falling slightly, and the overall level of activity at 54.3 still below the 55.0 score for the index in June last year and down slightly on May's score of 54.7.

Of various factors causing the rate of manufacturing expansion to cool in June, "contender number lone would have to be the soaring New Zealand dollar," said Bank of New Zealand economists in a commentary on the index.

The kiwi dollar hit new post-float highs this morning, threatening to break 85 US cents for the first time after much-delayed Gross Domestic Product figures for the March quarter came in twice as strong as expected, at 0.8 per cent growth in the same quarter as the devastating February 22 Christchurch earthquake.

However, the result was further evidence of "a decent core element to the expansion that has now been under way for 10 consecutive months," BNZ said.

An Export NZ survey released yesterday showed two-thirds of exporters are expecting improved orders, despite the strength of the dollar, while last week's Quarterly Survey of Business Opinion from the New Zealand Institute of Economic Research showed manufacturing optimism.

Recent trade statistics and today's GDP figures also show that manufacturing has been an underpinning factor in the emerging economic recovery in New Zealand.

The combined results also suggest that Christchurch manufacturers have been resilient, despite the impact of the quakes on the city, with the June PMI for Canterbury/Westland sitting at 52.1, compared with 53.4 a year ago, before any of the string of quakes hit.

By far the weakest region was Otago/Southland, which reported a very large fall in the PMI, from 58.4 in June 2010 to 41.3 last month.

On a national scale, the PMI sub-categories showed weakness in production, employment, and finished stocks, compared to the same month last year, but improved new orders and deliveries performance.

The new orders figures were "very healthy" and were "promising signals for demand and production ahead."

The slowdown occurring in Australia was a factor affecting the outlook, but the relative buoyancy of the Australian economy and the favourable exchange rate were a key part of recent strength, with no exporters surveyed making negative comments about the outlook across for their sales across the Tasman.

Nor were there any comments on the ongoing European debt crisis from any respondents to the survey in June.

"So, while plenty of risks remain in the international marketplace, there remains a sense of sure and steady improvement," said the BNZ, which warned, however, that it "might be just a matter of time before the strength of the New Zealand dollar, the Australian domestic slowdown and European debt issues catch up with us."