New Zealand manufacturing suffers longest contraction since 2009

NEW Zealand’s manufacturing industry has contracted for a fourth consecutive month, the most sustained downturn since 2009.

The Performance of Manufacturing Index (PMI) fell to 47.5 in June from a revised 48.7 in May, Business New Zealand and Bank of New Zealand (BNZ) said on Thursday (Jul 13) in Wellington. The index was also below 50, indicating a contraction, in March and April.

The PMI has been lower. It fell to 39 in August 2021 in the midst of the Covid-19 lockdown, and spent three months at or below 40 in early 2020 – including a plunge to 26 – when the virus first arrived in New Zealand.

But the gauge hasn’t shown four or more months of contraction since a 14-month slump that ended in August 2009, when the economy was emerging from recession following the global financial crisis.

“Four in a row is a message that manufacturing is struggling,” said Craig Ebert, senior economist at BNZ in Wellington. “Manufacturing output fell in the first-quarter GDP report. Today’s PMI does suggest production has fallen again in the second quarter.”

Manufacturing has come under pressure as cost-of-living increases and high interest rates curb consumer demand. The economy contracted in the final months of 2022 and the first quarter of this year, and while it may have stabilised in the second quarter, three of the nation’s biggest banks predict another recession will start later this year.

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Second-quarter GDP data won’t be reported until mid-September and there is a lot of data to emerge on consumer spending, exports and construction before analysts finalise their forecasts. BNZ is provisionally tipping 0.3 per cent growth.

Ebert said while the PMI paints “a fairly scratchy picture” for manufacturing across the board, it doesn’t reflect the heavy weighting that sectors such as food and beverage have in the GDP data. A strong end to the dairy season in May and good autumn weather for meat producers may yet provide a boost to manufacturing output in the quarter, he said. BLOOMBERG