New Zealand Manufacturing Suffers Longest Contraction Since 2009

(Bloomberg) -- New Zealand’s manufacturing industry has contracted for a 13th consecutive month, the most sustained downturn since 2009.

The Performance of Manufacturing Index fell to 47.1 in March from a revised 49.1 in February, Business New Zealand and Bank of New Zealand said Friday in Wellington. The index was last above 50, indicating expansion, in February 2023.

The PMI has been lower. It fell to 38.8 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 such a prolonged period of contraction since a 16-month slump that ended in August 2009, when the economy was emerging from recession following the global financial crisis.

Manufacturing has come under pressure as high interest rates curb consumer demand and residential investment. The economy slumped into a double-dip recession in the second half of 2023 and growth is predicted to be sluggish for much of 2024.

The Reserve Bank this week acknowledged the economy is weak but said the inflation outlook required it to keep interest rates restrictive for a sustained period.

Today’s data highlighted weakness in a measure of new orders, which at 44.7 was 10 points below its long-term average.

“It tells of soft demand with respondents predominately citing various domestic factors such as less construction activity and belt-tightening by consumers,” said BNZ Senior Economist Doug Steel. “Manufacturers seem to be responding by cutting costs, including by reducing staff numbers.”

Steel said a recent NZ Institute of Economic Research business survey showed that more than half of manufacturing firms cited low sales as the major constraint on their companies. That is evidence of a lack of demand and represents a swing from when the biggest issue was scarce supply of labor, he said.

“The good news is that a rebalancing of demand and supply, across the economy, will lower inflation and allow the RBNZ to lower interest rates,” Steel said. BNZ expects a rate cut in the fourth quarter this year.

More stories like this are available on bloomberg.com

©2024 Bloomberg L.P.