Manufacturing - A Year in Review
It is the time again to look back on the year that was – how did our manufacturing sector do, and what were the major developments that impacted our sector in another year of political change, both in New Zealand and around the world?
Internationally, issues around trade have dominated much of the economic headlines, with the trade war between the USA and China dominating the headlines, but conflict between the USA and Europe not far behind – not to mention Brexit, the trade implications of which appear to be just as uncertain as the question of whether it’ll actually happen or not. While these trade disagreements have not yet had a major impact on New Zealand exporters, they remain as a downside risk if they start impacting the wider flow of goods and supply chain which our companies are involved in. The exchange rate experienced some consistent depreciation throughout this year, however, much of this has been eroded over the last month. While 2018 has experienced a more favorable exchange rate than the highs experienced in 2014 and 2016, it remains systemically higher than the average of the previous decade, with the AUD cross-rate remaining as the biggest concern.
Domestically in 2018, we have seen a number of policy changes which will impact our sector. The improvements made to the Government’s R&D policy, increasing the proposed tax credit rate to 15% while halving the eligibility threshold to $50,000, have been a good step forward, and the move to use a committee for monetary policy decisions at the Reserve Bank makes solid sense. On the downside, the Employment Relations Amendment bill has been moving through the parliamentary process largely unchanged, with the only material concession being a weakening of the requirement to participate in collective bargaining by introducing opt-out provisions, the details of which are as yet unclear. This government’s declared goal of redressing a perceived imbalance between employers and trade unions has already seen very substantial public sector wage increases which – were they to influence wage demands in our sector without corresponding increases in labour productivity – would pose a serious threat to our sector.
Technology improvements for manufacturing companies, particularly in the area of automation and Industry 4.0, have continued to become more accessible, and, critically, are becoming cheaper with faster payback times. At The Manufacturers’ Network we have continued our work in helping our members investigate and share knowledge and experience in this area, including a study tour with Callaghan Innovation to the U.S to give manufacturers an opportunity to see some practical examples of Industry 4.0 and related advanced manufacturing technologies in practice.
I also want to reflect on recent data on the manufacturing sector, stepping back and seeing how growth for 2018 compares to the last five years. The numbers I will be referring to go up to the September 2018 quarter – if you click the link below you can find this full article along with a number of graphs based on the Statistics NZ manufacturing survey data.
Looking at across sub-sectors, including meat and dairy, manufacturing has seen a fairly steady but modest level of growth from September 2013 to now – averaging around 2% real (inflation-adjusted) growth per year. However, 2018 has actually seen a slight fall in growth between March and September quarters. While a number of sub-sectors in manufacturing have felt a slowing of growth in this period in 2018, meat and dairy manufacturing is a largest contributor to this fall in sales.
If you exclude meat and dairy, manufacturing has fared a bit better since 2013, experiencing around 2.7% real growth per year. Again, however, the rate of growth has slowed in the latter half of 2018 (June and September Quarters).
The transport equipment, machinery and equipment manufacturing sector had an average annual real growth of around 3.6% over the same 2013 – 2018 period. This sub-sector had a very strong start to 2018, but slowed off a little down to annual real growth of 2.6% for the September 2018 quarter, compared with the strong 8.6% annual real growth to the June 2018 quarter.
Chemical, polymer, and rubber product manufacturing has had a slighter lower average real growth rate since 2013 at around 2.2%. 2018 had a reasonably strong start and finish for the sector, with the June 2018 quarter falling in comparison.
There are some really encouraging signs here, including the fact that the sub-sector with, arguably, the highest value-adding contribution showing the highest growth rates by a clear margin. Overall, manufacturing has pretty steady growth over the last 5 years across most sub-sectors and while 2018 has largely continued this trend, there are some signs of weaker growth towards the end of the year. The core question is if this apparent slowdown of growth during the latter half of 2018 will extend to the coming year, or if this is just a temporary slowdown in growth. This may be related to a more general slowdown of the domestic economy, particularly related to some of the lower growth in the dairy and construction sectors. Time will tell if 2019 sees a bounce-back and continuing upward trends. In the face of Treasury in its latest HYEFU forecasting that Exports as per cent of GDP continuing to linger at well under 30% for years to come, we will continue to argue strongly that increasing the contribution of high-value-adding manufacturing to our economy is one of the few options we have to improve this embarrassingly poor economic statistic.
The following graphs were created using Statisics New Zealand Manufacturing Survey. All data points used are sales volumes represented in September 2010 prices.