Backwards roll for industry

By Brian Fallow

WELLINGTON - The manufacturing sector was still going backwards in the last quarter of 1998, according to the latest WestpacTrust analysis of manufacturing.

By every major measure - sales, investment, employment and profitability - the sector's performance deteriorated.

Manufactured exports continued to grow, but more slowly, as 1997's rebound in exports ran out of steam.

Growth in exports of elaborately transformed manufactures slowed to 3 per cent in the year to December, from a recent peak of 10 per cent in the year to March 1998.

The continuing recession in Japan was reflected in a 9.8 per cent fall in manufactured exports to that country, offset by increased sales to the United States, Europe and Australia.

But there has been a rapid slowdown in exports to Australia, Manufacturers Federation economist Peter Crawford said. In the second half of last year the annual growth rate slowed to 2 per cent, as New Zealand manufacturers lost market share to Asian competitors.

"There is a similar trend in the domestic market. Imports from China are up 25 per cent and it is similar for Korea and Thailand," Mr Crawford said.

Overall, manufacturers' sales within New Zealand fell 4.5 per cent over 1998, despite a pick-up in retail spending and a lower dollar.

Textile and clothing sales fell 12 per cent, continuing a long-established trend.

The fabricated metals sector - about a quarter of all manufacturing - experienced an 8.5 per cent drop in sales. It was hit both by the closure of four car assembly plants and by a significant decline (from $830 million to $670 million) in capital spending by the primary food processing industry.

Manufacturing investment fell 10.8 per cent, the sharpest fall since September 1992.

Profits came under increased pressure last year. The profit to sales ratio fell to 6.9 per cent for calendar 1998, down from 8.5 per cent for the previous year.

But by the December quarter the positive effect of lower interest rates was being felt, with manufacturers' interest bill at $172 million, 24 per cent lighter than in the same period of 1997.

"Despite these disappointing results, we are still predicting a return to growth in the manufacturing sector through 1999, albeit at a modest pace," ManFed president David Moloney said.

"Australia and the US, two of our largest export markets, have had strong economic growth which is expected to continue, at a slower pace perhaps, over 1999."