Manufacturing sales fall, pointing to larger GDP drop

Monday 16th March 2009

New Zealand manufacturing sales tumbled in the fourth quarter, suggesting the economy may have contracted at a faster pace than the central bank was forecasting last week.

Manufacturing sales excluding inflation fell 5.4% in the three months ended December 31, the fourth straight quarterly decline, according to Statistics New Zealand.

Reserve Bank Governor Alan Bollard last week forecast the economy shrank 0.8% in the fourth quarter and is heading for a similar contraction in the first three months of 2009. The manufacturing data suggests the contraction in fourth-quarter GDP was as much as 1%, according to Robin Clements, chief economist at UBS New Zealand.

The weak manufacturing figures suggest New Zealand may be facing a six-quarters-long recession, Clements said

"The RBNZ is more concerned with the outlook," he said. "Even if the recovery turns out to be weaker than they expect, this might mean that rates stay low for longer, as opposed to going lower than anticipated."

Bollard cut the official cash rate by 50 basis points to 3% last week and said any further cuts would be smaller because the economy is expected to trough mid-year.

Sales of petroleum and industrial chemical products, such as fuel and fertilizer, tumbled 30%, according to the government statistician. Meat and dairy sales fell 6%.

By Jonathan Underhill

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