New Zealand’s manufacturing sector has experienced a contraction for the thirteenth consecutive month, marking the most prolonged period of downturn since 2009. According to a joint report by Business New Zealand and the Bank of New Zealand, the Performance of Manufacturing Index (PMI) dropped to 47.1 in March, down from a revised 49.1 in February. This marks the longest stretch below the expansion threshold of 50 since a 16-month contraction that ended in August 2009 following the global financial crisis.
The manufacturing sector has faced challenges from high interest rates, which have dampened consumer demand and residential investment. The economic repercussions have been significant, with the country entering a double-dip recession in the latter half of 2023, and forecasts indicating a slow recovery throughout 2024. The Reserve Bank of New Zealand has recognized the economic fragility but maintains that the inflation outlook necessitates keeping interest rates high for an extended period. This week’s data further underscores this point, showing a significant weakness in new orders, which registered at 44.7—well below the long-term average. BNZ Senior Economist Doug Steel commented on the situation, noting that the downturn is largely driven by domestic factors such as decreased construction activity and consumer spending cutbacks.
“Manufacturers are adjusting by lowering costs, including workforce reductions,” Steel explained. He also referenced a recent survey by the New Zealand Institute of Economic Research, which indicated that over half of the manufacturing firms identified low sales as a major impediment, shifting from previous concerns over labor shortages. Despite these challenges, there is a potential upside. “The rebalancing of demand and supply across the economy will help to reduce inflation, potentially enabling the Reserve Bank to lower interest rates,” Steel added, with BNZ predicting a possible rate cut in the last quarter of the year. This adjustment could provide some relief to the struggling manufacturing sector and help stabilize the economy.
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