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Confidence Dives In May

1 July 2002

Confidence fell to the lowest in over a year in our survey of manufacturers completed in JUNE. Net confidence dropped to ZERO. This was driven by falling sales and wider concerns on interest and exchange rates. The cross rate on the Australian dollar is particularly important for the elaborately transformed exporters as Australia still represents the major market for exports from this sector. The export sector is starting to mirror the ongoing weakness we have seen for a long time in many domestic markets. "Confidence has been all over the place this year and right now it has dived some 29 points. There seems to be a building pessimism out there," commented John Walley, CEO Canterbury Manufacturers' Association. Overall sales on last year fell around 10%, domestic sales back around 10% with exports down some 9%.

Staff numbers continued to increase at around 2% on the same period last year. In the survey completed in JUNE all our future indicators - staff - investment - profitability - sales turned sharply negative. "Pessimism seems to be growing from the uncertainty we have detected in our last four surveys this year; it is a growing worry," said Mr. Walley.

It is no real surprise that manufacturers still identify the main constraint to growth as market conditions, four times more than the next constraint of productive capacity. Staff shortages are identified as a constraint at around the 10% mark and capital is not signalled as a problem at all.

“The strong appreciation of the NZ dollar is perhaps the biggest change since our last survey, but local body rates increases, electricity prices and interest rates were cited by respondents as major factors. The upcoming OCR review has the capacity to further fuel the growing fire of pessimism. We need to build confidence if people are the take the necessary risks to grow. One way or another a lack of confidence will result in lower growth," commented John Walley.

“From two of our last three surveys I think we can safely conclude that confidence has dived. Direct negative comments and the survey are now pretty much in line, it is probably too early to say the pessimism is solid but certainly the absence of confidence is firm. We said last month it could go either way and it seems to have taken a turn for the worse," said Mr Walley "Growth is under threat."

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