Rising interest rate and dollar driving manufacturing exports back to Global Financial Crisis levels
The Council of Trade Unions is calling on the Reserve Bank not to raise interest rates on Thursday.
“Another rise in interest rates will raise the dollar further, striking another blow at high value manufacturing industries who are exporting or competing with imports,” says CTU economist Bill Rosenberg. “The announcement of 36 job losses at high technology Auckland manufacturer Buckley Systems last week is just the latest in a continuing toll. There have been announcements of layoffs in manufacturing quoting the high exchange rate as an important factor almost every month over the last year.
“In the year to May, manufacturing exports in dollar terms were back to values not far above the trough of the Global Financial Crisis in 2009-10. Annual manufacturing exports have fallen since the beginning of 2012, in the year to May 2014 were lower than they were in the year to May 2005 – and much lower if inflation is taken into account. Even worse, the highest value exports – elaborately transformed manufactured goods – have fallen at the same rate and now make up less than one dollar in seven (13.6%) of total exports, down from almost a quarter of exports (22.6%) in the year to May 2005.” Rosenberg said.
“The Reserve Bank itself, and international agencies such as the IMF, have repeatedly described the exchange rate as too high and unsustainable, but we are told we have to just put up with it.” Rosenberg said.
“Another rise in the interest rate will also slow investment by many firms. As one of the firms laying off staff observed, they are not seeing any ‘rock star’ economy.” Rosenberg said.
“High value manufactured goods are the exports that are most able to pay good wages and should be our future. Yet we are increasingly reliant on commodity exports such as milk powder and logs. Agriculture, forestry and fishing, and another large export earner, tourism, have some of the lowest pay rates and poorest working conditions going. Instead commodity exports are driving the exchange rate, squeezing out high value exporters and the likes of wood processors and machinery manufacturers competing with imports. Now dairy farmers are also feeling the effects of the high exchange rate as their prices fall.” Rosenberg said.
“The Reserve Bank needs wider objectives so it takes employment and the exchange rate into account in its policies, as happens in Australia, where the Reserve Bank of Australia says its ‘duty is to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people’. The RBNZ needs to broaden the policies it uses so that it is less reliant on interest rates which affect the exchange rate and investment. It could make more use of capital requirements for banks and other lenders, targeted at particular types of lending. It could directly regulate their use of overseas funding, which can drive the exchange rate up as overseas investors chase the higher interest rates available here. This could include a financial transactions tax on incoming funds. Alongside these capital management policy tools, some direct participation in the foreign exchange market may have some effect.” Rosenberg said.
“The Government must accompany this with policies that address the main driver of prices at present: housing and electricity. It could be building more state housing and assisting local government to do the same, rather than relying on under-capitalised private providers to do it. It should make it easier to be eligible for income-related rents. It could build low cost, good quality housing for resale. Tenancy law needs reforming to provide long-term, secure tenancies for those who cannot or don’t want to buy. The electricity system needs to be brought under control to stop the continual and unwarranted prices rises. That would have been much easier if three of the biggest suppliers had remained under public ownership.” Rosenberg said.
“It is time for the Bank and the Government to stop sitting on their hands.” Rosenberg said.
Job losses in the last year where the exchange rate was quoted as a significant factor
• 17 July 2014, 36 job losses proposed at Auckland high tech manufacturer, Buckley Systems, citing the exchange rate.
• 19 May 2014, Fitzroy Engineering in Taranaki lays off 28 staff saying the “strong New Zealand dollar” was a factor along with competition for work in Australia. Managing Director Richard Ellis said he'd seen little evidence that Taranaki or the rest of New Zealand had a "rockstar economy".
• 24 April 2014, Dunedin sawmiller Southern Cross Forest Products announces it is to shed 79 jobs with the closure of its mill in Rosebank, Balclutha, and cuts at other South Island operations. Log prices are a factor.
• 12 April 2012, Christchurch Yarns in receivership, 85 workers expected to be made redundant, resulting from a downturn in orders, particularly in Australia, and the high New Zealand dollar.
• 16 January 2014, New Plymouth-based Fitzroy Yachts, which employs around 120 people, announces it will close its doors. Executive director of the NZ Marine Industry Association Peter Busfield said the high dollar was biting boat builders and other exporters.
• 31 December 2013, SCA Hygiene Australasia finally closes its tissue manufacturing line at its Te Rapa plant having been winding it down over the previous four months, with 140 employees made redundant. A subsidiary of Swedish business Svenska Cellulosa, the company's Australasian president Peter Diplaris said the decision came down to a challenging market environment and pressure from imports.
• 13 November 2013, 30 staff at Metso New Zealand in Matamata are made redundant after a head office decision in Finland to move more manufacturing to India. The Matamata operation specialised in vertical shaft impact rock crushing equipment and related services for mining and construction. In the past five years staff numbers had been chopped from 133 to 30.
• 19 October 2013, major Rotorua employer Tachikawa Forest Products is placed into receivership, jeopardising 120 jobs. Robert Reid, General Secretary of the FIRST Union which represents two-thirds of the workers says “This receivership comes on top of a continuing contraction of wood processing firms and jobs in New Zealand. The high New Zealand dollar, the high price of logs and the lacking government procurement strategy around both the Canterbury rebuild and government house building programmes see the continuation of raw logs being exported across our wharves while workers lose their jobs in the sector.”
• 23 August 2013, Air New Zealand announces it will axe 180 jobs. Engineering, Printing and Manufacturing Union (EPMU) assistant director of organising Strachan Crang says the airline's engineers had worked hard to remain productive. However, unless the dollar fell under US70c it would be impossible to remain competitive against cheaper Asian engineering facilities. ''Over the past three years they've delivered productivity gains in the double figures but this has all been eaten away by the high value of the New Zealand dollar''.