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New Zealand manufacturing warms up as recession-effects ease

Thursday 11th March 2010

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New Zealand manufacturing continued its slow but steady increase in output in February, with increased production and employment underpinning expansion.

The BNZ-Business New Zealand Performance of Manufacturing Index, which measures increases or decreases relative to a neutral 50 value, lifted 1.2 points to 53.3 in February compared to January.

“The really positive news for manufacturers continues to come from the export sector,” said BNZ head of research Stephen Toplis. “The strength in the export base showed through in December’s Economic Survey of Manufacturing. We had thought this survey would reveal an increase in real output of around 1.5%. However, by our calculations the actual increase is more like 3.5%. If we are right, manufacturing will, for the first time in two years, prove to be a major contributor to GDP output.”

The PMI indicated all five seasonally adjusted main diffusion indices in expansion in February compared to January.

Production was up 1.2 points to 53.4, employment up 1.8 points to 51.8, new orders constant at 56.1, finished stocks at 50.3 in expansionary territory for the first time since December 2008 and deliveries up from January at 52.9.

Manufacturing by industry sub-groups was a mix of expansion and contraction during February. Metal product manufacturing expanded at 54.9 along with machinery and equipment manufacturing at 52.4. Though in contraction, the petroleum, coal, chemical and associated products sector at 47.7 improved from the previous month.

However, the fragility in business conditions was evident,with two thirds of respondents making negative comments in February compared to 55% in January. Slow sales and lack of new orders were a common theme among manufacturing owners.

A global version of the local PMI, at 55, hit its second highest reading in almost four years.

Toplis noted that expectations for global growth continue to rise. The world is now expected to expand 2.5% in 2010, a significantly more robust recovery than the 1.9% view when forecasters were at their most pessimistic. An even stronger expansion of 3.1% is forecast for 2011.

“The news for New Zealand exporters is even better in that our trading partner basket is heavily influenced by Asia and Australia,” Topliss said. “Trading partner growth is thus expected to average 3.8% per annum over the next three years – a far cry from the 0.4% contraction reported for calendar 2009.”

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