New Zealand manufacturing activity shrinks for first time in 7 years

[WELLINGTON] New Zealand's manufacturing activity contracted in July for the first time since 2012, a survey showed on Friday, as new orders and employment conditions worsened.

The Bank of New Zealand-Business NZ's seasonally adjusted Performance of Manufacturing Index (PMI) was 48.2, down 2.9 points from June's downwardly revised 51.1.

A reading above 50 indicates an expansion in activity, while anything below that threshold indicates contraction.

BNZ senior economist Craig Ebert said while July's PMI did not confirm the wider economy was contracting the decline was "certainly something to take note of".

The New Zealand dollar dropped 0.2 per cent to $0.6437 after the PMI release.

Concerns have been mounting over slowing growth in New Zealand, as the economy faces headwinds from the US-China trade tensions and fears of a global recession.

New Zealand's central bank stunned markets last week with a steep 50 basis-point cut to the official cash rate (OCR) and flagged the risk of negative rates to fight slowing growth.

Reserve Bank of New Zealand (RBNZ) governor Adrian Orr said on Friday that weak inflation and employment expectations, not current conditions, were the main reason for interest rate cuts.

His comments were a response to an opinion piece by Kirk Hope, chief executive of lobby group BusinessNZ, published on Friday that criticised RBNZ for surprising businesses with the larger-than-expected cut and raising uncertainties by talking of negative interest rates.

Mr Hope said the rate cut did not seem directly related to current inflation or unemployment data.

"We cannot, and do not, set the OCR based on current or historical inflation and employment outcomes. We scan the horizon and chart for the journey. We look ahead - not behind," Mr Orr wrote in his response.

Following the New Zealand surprise, India's central bank cut by a slightly bigger-than-expected 35 bps, while the Bank of Thailand also unexpectedly reduced its key rate.

REUTERS