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Can we find a better way?

4 April 2006

Can we find a better way?

The latest Canterbury Manufacturers’ Association (CMA) Survey of Manufacturers completed during March 2006, shows total sales in February 2006 were down around 11% (export sales down 26.6% and domestic sales up 8.57%) on February 2005.

The CMA survey sample this month reported around NZ$426m in annualised sales with an export content of 46%.

“The rapid change in the New Zealand dollar cross rate with the Euro, US and Australian dollar opens the prospect on improved returns from export efforts for Canterbury manufacturers,” says John Walley, Chief Executive of the CMA, “the cross rates are approaching the top end of the comfort zone for many manufacturing exporters.”

“Last month the fall in the dollar was encouraging, since then we have been in a period of free fall, by now it seems the exchange rate “up cycle” is past. If New Zealand is to continuously grow a manufacturing tradable sector we need policy settings (both fiscal and monetary) to reduce exchange rate volatility. ”

“A low dollar might bring ‘giggles and laughter’ to exporters, followed by a period of concern as the dollar strengthens, leading to a growing fear as balance sheets are drained, followed by company closures for some and for those that survive, life is good for a while before it all happens again. There has to be a better way.”

“This time round, how soon the drop in the New Zealand dollar makes a difference to balance sheets depends on the situation in each company, many, who were fully exposed to the downside will see returns jump as new transactions are completed – not a moment too soon for some.”

“The drop has certainly feed through to the confidence numbers but we are still not in the net positive area.”

“While a number of the comments around exchange are very positive, for some the domestic market is “ugly” as price competition with cheap imports remains, some are looking at extended “shut downs” over the Easter and ANZAC holidays to soak up over-capacity.”

Net confidence remains low at -13 from -47 last month, driven by the dollar free fall.

The current performance index (a combination of profitability and cash flow) stands at 99 up from 98 last month, the change index (capacity utilisation, staff levels, orders and inventories) up to 97 from 95 last month, the forecast index (investment, sales, profitability and staff) remains at 95. Anything less than 100 indicates a contraction.

Constraints focused on markets ~71%, capacity ~14% and capital 14% .

Staff numbers continued to fall at 10.43%.


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