Expansion continues for manufacturers

Manufacturing and exports are up, but a cautionary tale is emerging on the perils for business of...
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 southern neighbour.

Points above 50 denote expansion, while below 50 signal contraction.

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 subsector activities.

'' Exchange-rate difficulties have been cited as being largely behind this low-end to mid-range performance,'' Mr Scandrett said.

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 point''.

''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 Toplis said.

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 60-point mark.

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 statement.

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 November 2007.

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.

- simon.hartley@odt.co.nz


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