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The gloom continues

8 December 2008

The gloom continues

The latest New Zealand Manufacturers and Exporters Association (NZMEA) Survey of Business Conditions completed during November 2008, shows that total sales in October 2008 decreased 2.70% (export sales increased by 7.93% with domestic sales decreasing 13.1%) on October 2007.

The NZMEA survey sample this month covered NZ$460m in annualised sales, with an export content of 55%.

Net confidence is at -82, up from the -90 result reported last month.

The current performance index (a combination of profitability and cash flow) is at 88.5, down from the previous month’s 92.5, the change index (capacity utilisation, staff levels, orders and inventories) went down to 96 from 98 last month, and the forecast index (investment, sales, profitability and staff) is at 92.3, down on the previous month’s result of 95.  Anything less than 100 indicates a contraction.

The reported constraints were: 9% staff and markets 91%.

Staff numbers for October increased year on year by 11.7%.

“We have seen the low confidence rating last month transfer into lower sales this month.  The overall drop in sales reflects the global credit crisis, and with few forward orders, confidence has remained low,” says NZMEA Chief Executive John Walley.

“The global credit crisis is having varying affects.  Soft sales domestically and lower growth in exports are cancelling out the benefit of the lower dollar for exporters.  The reports are mixed with some exporters reporting difficult market conditions, while others are finding sales holding up with a lower dollar helping improve returns.  In some cases this applies even at lower sales levels.”

“It is a positive sign that manufacturers and exporters are still hiring staff, in contrast with other sectors of the economy.  This reflects that sales are holding up right now, even though forward orders are slowing.  Exporters are also keen to maintain their capacity in case markets improve and they can take advantage of the low dollar.”

“The major concern is that predictions for future investment, profitability, turnover and staff are all trending downwards, which makes an export led recovery tenuous.  This can largely be attributed to the uncertainty in global markets and the volatility of the exchange rate.  Returns from manufactured goods are always under competitive pressure; investment in capacity can be wasted if the dollar appreciates.”

“Hopefully the new Government will revise their ideas on the R&D tax credit and other policies that can better support their stated growth objectives for exports, even in the face of the problems in the world.”


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