Mix of negative influences hurting NZ manufacturing

New Zealand manufacturing took a major hit last last year as inflation gobbled up disposable income.

High interest rates, that persistent inflation, consumer trepidation and investor skittishness have all been blamed for damaging the sector.

Stats NZ yesterday said manufacturing sales fell 6.9 per cent last year to $31.225 billion, the biggest plunge among 14 sectors measured.

Kiwibank economist Sabrina Delgado said consumers and firms could at least get relief late this year with a possible official cash rate cut.

“[But] manufacturing has really led the decline. Businesses are investing less in this high interest-rate environment,” she told the Herald.

The Stats NZ Business Financial Data gave some insights into the likely paths of inflation and GDP growth.

Delgado said nobody would be surprised if per capita and overall GDP shrank in the December quarter.

“We [will] be looking at very low growth, whether it’s a small contraction or just a really small expansion.” That GDP data is due on March 21. Delgado said with a nexus of troubles hurting manufacturing, investors were for now often reluctant to invest in the sector.

Retail sales statistics, alcohol availability data, and declining import volumes in the December quarter all pointed to Kiwis cutting back on socalled discretionary spending.

High interest rates and sticky inflation did not create an environment conductive to growth, Delgado said.

Retail trade and accommodation sales were down 1.5 per cent in the quarter, and 0.3 per cent in the year.

Wholesale trade, the biggest of the sectors Stats NZ measured, was down 1 per cent in the quarter to $38.035b and down 2.7 per cent in the year.

Output across retail trade and construction was also down.

The biggest surges in annual sales were for electricity, gas, water and waste services, up 23 per cent.

Rental, hiring, and real estate services were down 1 per cent in the quarter to $9.06b but up 6.2 per cent compared with a year earlier.

Information media and telecommunications was up 0.9 per cent in the quarter and 5.5 per cent over the year.

For all industries measured, sales last year were $200b, down $541m or

0.3 per cent on the year before. Jobs data indicated Canterbury and Hawke’s Bay had the fastest growth in jobs late last year.

Both regions were up 0.8 per cent on the September quarter.

Stats NZ said Canterbury added

2487 jobs and Hawke’s Bay 600 jobs in the December quarter.

“Their housing market hasn’t declined as much as other places,” Delgado said of Canterbury.

Kiwibank previously said Canterbury housing had a soft landing compared with in other markets.

For new jobs, Auckland and Waikato weren’t far behind, each having a

0.6 per cent increase in the quarter. Nationwide, overall earnings were up 9 per cent over the year, well above inflation. Delgado said that measure of earnings might partly reflect wages playing catch-up after people faced wage freezes during Covid-19.

Delgado said many people and firms will likely have to brace for a tough or austere autumn and winter.

But she said the Reserve Bank could be in a position to start lowering interest rates from November.

The Reserve Bank kept the official cash rate (OCR) at 5.5 per cent last week. Its accompanying monetary policy statement was less hawkish than some economists might have expected.

Delgado said the central bank should be seeing some of the deflationary influences already at work, such as the multiple recent datasets showing consumers were not splurging. “People are pulling back. It’s quite obvious . . . and it should be obvious to the Reserve Bank too.”