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Export-oriented manufacturing leading recovery charge

Thursday 15th July 2010

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New Zealand manufacturers, especially the export-oriented sector, are leading the country’s economic recovery, according to the latest data and look set to outperform the wider economy for the remainder of 2010.

The manufacturing sector grew 1.6% in the first quarter of the year, providing the strongest positive contribution to nationwide gross domestic product for the second consecutive quarter, said Bank of New Zealand economist Doug Steel.

“Manufacturing activity is up 4.3% on year ago levels – displaying more than twice the pace of growth of the economy overall,” he said.

Steel emphasises that manufacturing’s recent growth comes off a depressed base, and that its reorientation is closely associated with economic rebalancing towards production and saving, and away from spending and consumption.

This is reflected in domestic trading conditions remaining tough for many; the cautious New Zealand consumer contributing to a net seven percent of manufacturers reporting a decrease in domestic sales over the past year.

Overall though, manufacturers are confident and the NZIER’s quarterly survey of business opinion indicated that in June 30% of firms expect better business conditions over the coming six months. This compares to a year ago when the figure was -22%, and the beginning of 2008 when the equivalent figure was -73%.

The manufacturers’ optimism is due to an improving world economy, driven by Asian and Australian growth, as well as a favourable exchange cross rate between the Kiwi and A$ that have seen export markets improve markedly Steel said.

“The optimism seems to be largely driven by exports and export expectations,” he said.

“Indeed, in the QSBO, a net 10% of manufacturers reported an increase in export sales over the past year and expectations are positive.”

According to the QSBO’s business confidence guide, manufacturing appears likely to outperform the rest of the economy this year.

“The net 30% of manufacturers expecting better business conditions over the coming six months compares favourably to general business confidence of 18%,” said Steel.

“Staggeringly, this positive gap is the largest in manufacturing’s favour since at least 1970. We take this as a sign that the reorientation of economic growth is only beginning to run its course.”

“The eventual outcome for both manufacturing and the wider economy is still very dependent on developments aboard. For now, at least, things seem to be moving in the right direction.”

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