Subdued economic activity around the world has been reflected in New Zealand, with both the national and Otago manufacturing sectors showing a downturn in expansion.
For four consecutive months, there was a decline in the manufacturing expansion index in February.
Employment contracted for the first time in 10 months and finished stocks and deliveries both drew back from January figures, according to the BNZ and Business New Zealand performance of manufacturing index (PMI), released yesterday.
Otago Southland Employers Association chief executive Duncan Simpson said more than 60% of the sample reported cost increases in raw materials, interest and exchange rates, and recruitment difficulties impacting on their business during the last three months.
‘‘Negative comments are still dominating the local scene. The buoyancy enjoyed by Otago and Southland manufacturers in recent months could be running out of momentum,'' he said yesterday.
A PMI index reading above 50 indicates manufacturing expanding and below 50 a decline.
Otago results, at 52.4, were well down on the 58.8 recorded in January, which mirrored the national result of 52.2.
Nationally, new orders at 54.1 led the index, but were at their lowest point since March 2006 and production remained the same as January levels at 51.6.
BNZ economist Stephen Topliss said ‘‘the worm had certainly turned'' and while the result reflected early stages of a marked softening in growth, he could not rule out the possibility of a recession.
The potential for recession meant the Reserve Bank would not move to raise the interest driving official cash rate again making it plausible the central bank could begin to cut the rate by a ‘‘substantial margin'' before the end of the year, as opposed to an earlier indication from it of no rate cuts till 2009.
Business New Zealand chief executive Phil O'Reilly said that falling momentum for the domestic sector mirrored the global manufacturing scene which was feeling the effect of subdued economic conditions.
The US faces recession with the weakening dollar, which is affecting European economies along with the credit crunch.
