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Manufacturing confidence at five-year high

NZ NewswireNZ Newswire 11/04/2016 Tina Morrison

New Zealand manufacturers are the most confident they've been in more than five years, spurred on by a gain in exports, according to the latest survey.

February net confidence rose to 45 from 12 in January, according to the New Zealand Manufacturers and Exporters Association survey of business conditions, which was completed in March. That's the highest level since May 2010, when the survey had a net reading of 50.

All three sentiment levels improved. The current performance index, which measures profitability and cash flow, increased to 106 from 99.3 last month; the change index measuring capacity utilisation, staff levels, orders and inventories gained to 104 from 97; and the forecast index, which measures investment, sales, profitability and staff rose to 107.67 from 102.83. A reading above 100 indicates expansion.

The survey showed export sales increased 74 per cent in February from the year earlier, although the association noted February last year was a particularly low month for exports.

The February export sales boost is a "stark contrast" to recent months, ending a year-on-year decline since October 2015, and a "huge improvement" from January's 25 per cent fall, said NZMEA chief executive Dieter Adam.

Domestic sales also bounced back, showing an 8.8 per cent increase on February last year, following a decline of 1.5 per cent in January.

Adam said that despite the positive result, pressure remained on the Reserve Bank to cut interest rates, given the elevated exchange rate.

"While manufacturers can still have good months despite an overvalued currency, over time this weighs on manufacturers and exporters, and their incentives and ability to reinvest to stay competitive," he said.

The NZMEA survey comes after the New Zealand Institute of Economic Research's quarterly survey of business opinion found manufacturers were particularly gloomy in the March quarter, with fewer firms expanding their output as domestic and export markets deteriorated.

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