Manufacturing still in deep trouble, PMI survey shows; BNZ sees 0.9% GDP fall

  New Zealand's manufacturing sector continues to contract, according to the latest Business New Zealand/Bank of New Zealand Performance of Manufacturing Index (PMI). The unadjusted PMI for December fell to 41.5 from 43.4 in November and has been below the 50 threshold denoting contraction or expansion since February last year. Business NZ Chief Executive Phil O'Reilly said the improved competitiveness of the New Zealand dollar and the likelihood of further interest rate cuts in coming months brought some hope, but the overall picture was very constrained. BNZ economists said sagging international demand was the dominant issue. "Inventory is accumulating the world over, which is why new orders have plunged just as much as industrial production has over the last couple of months," BNZ said. BNZ's economists, who were the first to forecast a recession last year, later issued a revised forecast for a 0.9% fall in GDP for 2009, extending the recession to two years. "Prior hopes that we might find our feet through 2009, and start rebounding toward the end of it, have been stymied by an intensifying global recession that will surely keep us on the back foot, if not knock us onto our posterior," BNZ economist Craig Ebert said. " With mixed fortunes for exporters, the bigger driver of the NZ economy this year will probably be what happens to business investment and employment. These were already looking vulnerable, given the cooling of the economy and the intensifying squeeze on profits," Ebert said. "But the extent and suddenness of slowdown, and the realisation that things won't "return to normal" any time soon, is now forcing some major re-alignments in the business sector." * This article was first published yesterday in our daily subscription newsletter for the banking and finance industries. The email costs NZ$365 per annum and carries exclusive news and analysis for New Zealand banking and finance industry executives, regulators and investors. Sign up for a free trial here.