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Domestic sales and confidence down

Monday 28th July 2008

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New Zealand manufacturers say domestic sales fell and confidence dropped in June, before the central bank cut interest rates and helped drive down the kiwi dollar.

Net confidence was -55 in the New Zealand Manufacturers and Exporters Association survey, released today, from -40 in the previous month. The survey, completed in July, showed domestic sales fell 14.7% in June while exports surged 39.6%, for an overall 3.8% gain.

"The interest rate cut and the fall against the US dollar happened after we closed this survey," said NZMEA chief executive John Walley. "Domestic demand has dropped away but has been propped up by higher export sales. Across the board rising costs are eating away at margins."

New Zealand's dollar has traded below 74.50 US cents this week, about 1 US cent lower than it was last week. Reserve Bank Governor Alan Bollard last week cut the official cash rate a quarter point to 8% and said there's probably more to come. Most economists agree that rates will fall further and the kiwi will track them lower.

The central bank's statement "gave the green light to further interest rate cuts over the coming months," Danica Hampton, currency strategist at Bank of New Zealand.

That's likely to push the kiwi to 72.50 US cents by September 30 and as low as 70 US cents by the end of the year, Hampton said.

The MEA survey tracks three composite indicators: the current performance index, the charge index and the forecast index. All three were at less than 100 (93, 99 and 98 respectively), the first time in several years that they have lined up to show a contraction.

Figures today showed the merchandise trade deficit narrowed in June on soaring shipments of dairy products, which outpaced more tepid imports growth.

The deficit was $4.5 billion in the 12 months ended June 30, Statistics New Zealand said in a report. The annual trade gap shrank from $4.8 billion in May.

By Jonathan Underhill

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