New Zealand manufacturing grows for first time in two years
NEW Zealand’s manufacturing industry expanded for the first time in almost two years, reinforcing signs the economy is starting to respond to lower borrowing costs.
The Performance of Manufacturing Index rose to 51.4 in January from a revised 46.2 in December, Business New Zealand and Bank of New Zealand said on Friday in Wellington. The index was above 50, the dividing line between contraction and expansion, for the first time since February 2023.
Increased manufacturing signals that New Zealand’s economy is starting to grow after a sharp recession last year that saw gross domestic product decline 2.1 per cent in the six months through September.
The Reserve Bank began cutting interest rates in August and is tipped to maintain an aggressive pace with another 50 basis-point reduction next week, taking the Official Cash Rate to 3.75 per cent.
“It’s a positive start to 2025, with the manufacturing sector shifting out of reverse and into first gear,” said BNZ senior economist Doug Steel. “While the PMI still sits below its long-run average of 52.5, the improvement is welcome news for manufacturers after a very challenging two years.”
Friday’s report showed a gauge of new orders lifted to 50.9 - exceeding 50 for the first time since August 2022. All five sub-indexes of the PMI including production and employment were above that dividing line.
Steel said manufacturing is likely to expand just 1 per cent in 2025. While falling interest rates are supportive, and a lower New Zealand dollar will help exports, there is still heightened global trade uncertainty, he said. About 40 per cent of manufactured output is sold overseas.
While the net effect of US tariff policies is unclear, “uncertainty breeds caution,” he said. “The key here is not so much the direct impact of tariffs on New Zealand but rather the indirect effect on China and global growth.” BLOOMBERG
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