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Manufacturing weakens to record low, output shrinks

Thursday 13th November 2008

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New Zealand manufacturing activity fell to a record low in October, marking the sixth straight month of contraction on declining orders and lower production.

Manufacturing fell 3.2 points to 43.5 last month, seasonally adjusted, from 47 in September, according to the Bank of New Zealand-Business NZ Performance of Manufacturing Index. A reading below 50 indicates a contraction.

The figures come amid increasing signs that the global economy is lurching toward recession, extending the prospects for New Zealand's economic slump. A government report today showed weaker than expected retail sales in September while figures from credit check company Veda Advantage showed corporate defaults on debt surged 47% in the third quarter.

The decline in New Zealand's PMI mirrors a slide in a global PMI index, a composite of surveys from 20 countries, which sunk to a record low 41 last month.

"As parlous as conditions in the global manufacturing sector currently are, the clear risks are that they could yet worsen," said Mark Walton, economists at BNZ.

"At the very least, recovery is nowhere in sight, suggesting tough times ahead for New Zealand firms in the business of supplying intermediate inputs offshore."

All five of the diffusion indexes in the NZ PMI survey declined in October. Production fell to 43.4, employment dropped to 42.5 and new orders slumped to 42.6. Finished stocks were at 48 and deliveries of raw materials at 44.7.

A regional breakdown shows the North Island has been hit hardest, with the northern region at 43.7, the 10th monthly contraction, and the central region at 47. In the South Island, the Canterbury/Westland was at 54.3 and Otago/Southland was 54.2.

By Jonathan Underhill

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