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Manufacturing "getting less worse"

Thursday 14th August 2008

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New Zealand manufacturing recovered in July, though it stayed in decline, amid prospects for weakening demand as the economy flags.

The manufacturing index improved to 48.8 in July from 45.3 in June, according to a Business New Zealand survey. A reading below 50 indicates manufacturing is contracting.

"You can't get too sanguine about manufacturing prospects, at least not in the foreseeable future," said Craig Ebert, senior markets economist at Bank of New Zealand, which sponsors the survey. Construction is "tracking very weakly," business investment looks "a bit shaky" and spending on big-ticket items is "collapsing."

There are some signs of improvement, with a weakening New Zealand dollar and lower commodity prices, according to BNZ. A weaker kiwi boosts the New Zealand dollar value of export sales.

New Zealand's dollar fell to as low as 68.26 US cents yesterday, a two-year low, though it rebounded to about 70.50 cents and was recently around 70 cents. The currency has weakened as it became clear the central bank, confronted by an economy teetering in recession, is now on an easing path. BNZ's house view is for the official cash rate falls to 5.5% by December 2009, from 8% currently.

"The index has improved but it's still in contraction territory," Ebert said.

By Jonathan Underhill

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