Time for Government to act

31 August 2016

The latest New Zealand Manufacturers and Exporters Association (NZMEA) Survey of Business Conditions completed during April 2016, shows total sales in March 2016 increased 1.28% (year on year export sales increased by 5.31% with domestic sales decreasing by 5.03%) on March 2015.

In the three months to March, export sales increased an average of 18.2%, and domestic sales increased 0.8%.

The NZMEA survey sample this month covered NZ$389m in annualised sales, with an export content of 63%.

Net confidence fell to 33, down from 45 in February.

The current performance index (a combination of profitability and cash flow) is at 103.3, down from 106 last month, the change index (capacity utilisation, staff levels, orders and inventories) was at 103, down from 104 in the last survey, and the forecast index (investment, sales, profitability and staff) is at 107, down on the last result of 107.67. Anything over 100 indicates expansion.

Constraints reported were 61% markets, 28% production capacity, 6% skilled staff and 6% capital.

There were no reported net productivity increases for March.

Staff numbers for February increased 1.06% year on year.

Operators/labourerstradespersons and supervisors, managers reported a moderate shortage and professional/scientists reported a minor shortage.

“March’s export numbers have moved back down towards reality after last month, though remaining positive both for the month and for the average of the last three months. This does stand in contrast with some recent export numbers from other sources, which have had more negative results. Domestic sales fell year on year by 6% for March, after an increase felt last month. On a three month average measure, which is a better indicator of recent trends, domestic sales are flat at 0.4%.” says Dieter Adam, Chief Executive of the NZMEA.

“There were a number of comments around the introduction of new products starting to pay off, and the production capacity constraint rose to the highest level since January 2015. Confidence and indexes fell back from highs last month, but remain significantly positive.

“The exchange rate remains high, and worryingly, this has been increasing instead of following the expected downward trend. We hit over 70 cents to the USD again recently before falling back a little - this starts to erode the competitive position our exporters have fought so hard to regain over the past 12 months.

“The housing market is clearly weighing on the RBNZ’s mind, cautioning their response to low inflation and a high exchange rate. We encourage the RBNZ to continue their work in the macro-prudential space, but the responsibility ultimately lies with Government. While increasing supply is a core issue, on the demand side, correcting tax incentives should play a part in the solution - not a silver bullet, but an important part of the puzzle. Over time, correcting any tax advantage could help encourage more investment into productive enterprise over housing and property.

“What we need to see now is a clear signal from the Government to investors in the property market that it considers the current situation to be unsustainable and is determined to take effective measures to address it. Our manufacturers and exporters are paying the price for the Government’s inaction when higher interest rates than necessary keep our exchange rate high. This also hits the wider economy, hurting our ability to pay our way in the world through exports – not to mention those people for whom purchasing their own home or finding affordable accommodation has become an ever more vanishing prospect.” Said Dieter.