Toplis talks up manufacturing

There was a ''significant chunk'' of New Zealand's manufacturing sector that was performing admirably and it was about time it was recognised, BNZ head of research Stephen Toplis said.

There was a perception the country was seconds away from the complete and utter destruction of New Zealand's manufacturing sector.

It would appear from reports that 100% of New Zealand's manufacturing production was sent offshore and that all sales were made in US dollars, he said.

As a consequence, the soaring New Zealand dollar against the US currency had destroyed any chance of anyone making any money whatsoever.

''A modest exaggeration perhaps, but the widespread perception is that not only is the manufacturing sector dying but that its death will also undermine the New Zealand economic expansion that is under way.''

It was true that some manufacturers were struggling, Mr Toplis said. By most measures the dollar was overvalued against many of its trading partners' currencies and it was true the strength of the currency was having a significant adverse affect on many manufacturers.

''But it is plain wrong to extrapolate from this that all and sundry are in a mess.''

In the case of many New Zealand manufacturers, much of their intermediate consumption was imported, whether that be raw materials or fuel. The net cost of the currency's appreciation was often much lower than gross cost, he said.

Mr Toplis said that if there was a nail in the coffin of the argument that manufacturers were in crisis, surely it was what manufacturers themselves were saying about their plight.

According to the latest ANZ business opinion survey, a net 48.7% of manufacturers were optimistic about their outlook. That was a ''massive'' 21 points above the average for the series.

It also meant that manufacturing was the most optimistic sector in the country, he said.

Today, the Opposition-led manufacturing inquiry will hold a session in Dunedin with union representatives for the now-closed Hillside Workshops and Summit Woolspinners set to speak. Summit closed last month with the loss of 192 Oamaru jobs. The inquiry into the loss of 17,000 manufacturing jobs in the past 12 months will be held at the Otago Museum from 10am.

On Friday, the New Zealand Manufacturers and Exporters Association - no friend of the current Government - said its survey of business conditions completed during February showed total sales in January increased 7.71% with export sales increasing by 17.23% and domestic sales falling 0.2% on January 2012.

The survey sample covered $221 million in annualised sales with an export content of 49%.

Net confidence rose to -9%, up from -14% reported in January.

Chief executive John Walley said staff numbers for January increased year-on-year by 2.03%.

''We are seeing positive increases in exports for January but confidence, although improved on last month, is still negative. Overall trends are hard to pick, but it seems they are zero to slightly positive in recent months.''

Markets and exchange rates were once again seen as the biggest constraint to growth. With better news, at least for now, from the economy, the association hoped the Reserve Bank would move quickly on the introduction of prudential tools to push back on house price inflation.

Mr Toplis said the Business NZ-BNZ performance in manufacturing index also showed confidence to be ''relatively lofty'' in the sector, and so too did the New Zealand Institute of Economic Research's quarterly survey of business opinion.

''From our perspective, the medium-term outlook for the core manufacturing sector looks relatively promising.''

New Zealand trading partner growth was expected to be at or above average and the building sector was set to boom and would support domestic sales, he said.

But there was unlikely to be substantial relief from the currency, and global excess supply would remain problematic. Also, the food and beverage sector would suffer from the current drought and there was no suggestion that manufacturing output would return to its 2005 peaks any time soon, Mr Toplis said.

The manufacturing sector faced serious issues and many manufacturers were struggling and would struggle to survive.

But talk of the death of the sector as a whole was wildly premature, he said.

Furthermore, suggestion that all that was needed for success was an adjustment to the currency was misplaced, Mr Toplis said.

-dene.mackenzie@odt.co.nz