Manufacturing and exports are up, but a cautionary tale is
emerging on the perils for business of higher interest
rates and the ever-strengthening New Zealand dollar;
pictured, containers of outbound exports at Port Chalmers.
Photo by Gerard O'Brien.
Manufacturing in Otago and Southland remains in expansion
mode - and above the national average - but has taken a hit
from the effects of the high New Zealand dollar.
While manufacturing joins many other sectors notching up
successive positive economic gains, the Reserve Bank's recent
hiking of the interest rates and restrengthening of the New
Zealand dollar are posing greater risks for businesses.
Having led the BNZ-Business New Zealand performance of
manufacturing index in recent months, Otago Southland was the
only one of four regions to lodge a dip for March, but
remained almost at first-equal ranking, 59.8 on the index,
compared with Canterbury Westland's 59.9.
That region had a large 6.2-point gain to overtake its
Points above 50 denote expansion, while below 50 signal
Otago Southland Employers' Association chief executive John
Scandrett said although the local index result was ''overall,
still comfortably in expansion mode'' there was ''significant
March slippage'', in selected wood, packaging and paper
'' Exchange-rate difficulties have been cited as being
largely behind this low-end to mid-range performance,'' Mr
Statistics New Zealand data released in February showed New
Zealand's primary exports attained their largest ever
February trade surplus and for the 12 months to February
stood at $649 million. Gross domestic product had
manufacturing at its highest levels in eight years.
BNZ head of research, Stephen Toplis, said the manufacturing
sector was ''rightly'' in a buoyant mood, but cautioned the
economy and financial markets were ''at an inflection
''At such times, the potential for significant movements in
interest rates and exchange rates is heightened.
''Given this, businesses need to focus on risk management to
ensure that the impact of such risks can be mitigated,'' Mr
Nationally, the index rose 1.9 points from February to 58.4
for March, with the northern North Island at 59.2 and central
North Island 57.6, and the two southern regions both near the
BusinessNZ's executive director for manufacturing Catherine
Beard said the manufacturing sector nationally had now been
in expansion for 19 consecutive months and the first quarter
of 2014 averaged 57.1 points.
''After five consecutive months of solid activity, it was
pleasing to see activity experience a further boost.
''Both production and new orders remained strong, while
employment also lifted to its highest level for over six
years,'' Ms Beard said of the national figures.
Mr Scandrett said despite the ''slippage'' in some timber
sectors for Otago Southland, elsewhere in that industry there
were ''cautiously positive comments expressed'', based on
some new contracts having been recently secured.
''Continuing strength in the clothing and textile arena and
across some food and beverage activity has helped to maintain
the region's manufacturing expansion.
''It is pleasing, while not down-playing the negative
sentiment, to see the production and new orders subindices
continue to drive buoyancy in the survey,'' he said in a
For the first time since October, all five of the national
seasonally adjusted main diffusion indices were in expansion
for the current month.
Nationally, both production and new orders, at 60.5,
displayed the same level of expansion, while employment,
56.3, had risen 1.6 points to record its highest level since
Deliveries of raw materials, 57.1, edged slightly downwards
from February but remained in expansion, while finished
stocks, 51.1, went back into expansion after four consecutive
months in contraction.