The index in December was 45.5, a 7.3 point increase from November. It was the lowest December result recorded since the PMI started in 2002.
The final result for 2008 showed that nine of the 12 months were in contraction for manufacturing, with eight consecutive values below 50.
A value below 50 indicates activity is contracting and above 50 that activity is expanding.
The Otago-Southland index was 51.1 in December. Otago-Southland was the only region to show any expansion in activity.
Business NZ Chief Executive Phil O'Reilly said the improved competitiveness of the New Zealand dollar and the likelihood of further interest rate cuts in coming months brought some hope, but the overall picture was very constrained.
"The November result was extremely poor for the sector, and the upswing in the December result should not be interpreted as a potential path to recovery for manufacturing.
"Overall, 2008 was extremely tough for manufacturers, with the sector in decline for three quarters of the year."
Comments from manufacturers for December were some of the shortest and sharpest that Business NZ had received, focusing on the fundamental aspects of low demand, general economic downturn and uncertainty, he said.
BNZ senior economist Craig Ebert said it was difficult to believe any genuine claw-back in manufacturing confidence was at hand, with the world economy looking as bad as it was.
"Indeed, New Zealand's trading partner demand is shaping up as the very slowest in decades. Trouble redoubled? We haven't seen the half of it," he said.
There were some cushions coming into play for New Zealand manufacturers but the dominant issue was fast becoming sagging international demand.
Inventory was accumulating the world over which was why new orders had plunged just as much as industrial production over the last few months.
That was as evident through Asia as it was in the mature economies with which New Zealand had strong trading ties.
The recent track of consensus economic forecasts helped put that into perspective, Mr Ebert said.
As recently as September, the view was that the global economy would have a soft landing.
"Just four months down the track and utter collapse is the agreed view. While always the risk, it has been a stunning downshift to witness, nonetheless."
New Zealand's trading partner growth, weighted by relative merchandise flows, was expected to be flat this year.
While that might not sound like the end of the world, the previous low back in the early 1980s was 1.3% and growth held above 2% during the early 1990s global recession and the Asian financial crisis of 1998, he said.
The new depth of complete stalling was all the more worrying given the increased weight of naturally faster growing economies such as China and South Korea.
The weak demand in merchandise export markets New Zealand was facing was a combination of negative growth for the United States, Europe, the United Kingdom and Japan, very slow growth in Australia and well below par expectations for non-Japan Asia.
New Zealand's tourism-weighted international demand would come to a complete standstill this year, Mr Ebert said.
Even during the Asian crisis of 1997-98, when tourist arrivals dipped about 5%, trading partner growth did not slip below 2%.
"The even bigger concern is that the consensus view on global growth for this year is not soft enough.
"We would bet a king's ransom on it being reduced even further over the coming months, in the least on the realisation that the first half of 2009 will prove weaker than the closing stages of 2008.
"If we're right, we'll be setting lower lows for trading partner growth expectations for this year as a whole," he said.
