Stubbornly strong kiwi hits exports

For manufactured exports, Australia is New Zealand's biggest destination by far - taking about 30 per cent. Photo / Greg Bowker

Manufacturing exports slumped by more than 20 per cent in July as a persistently strong Kiwi dollar puts pressure on the sector.

A New Zealand Manufacturers and Exporters Association survey of business conditions showed sales in July fell by 15.27 per cent compared with last year. Year-on-year export sales decreased by 20.48 per cent with domestic sales falling by 6.03 per cent on July last year.

In the three months to July, export sales decreased an average of 6.5 per cent, and domestic sales increased 2.6 per cent, according to the survey.

The survey sample covered manufacturers with $337 million in annualised sales, with an export content of 60 per cent.

The sample size varies within a band of $350m to $500m - small relative to the size of the sector - but the association's chief executive Dieter Adam said the survey had proven itself to be a reliable indicator.

"We would not claim that the survey is an overly representative sample but when you look around, it is the only manufacturing survey that uses numbers rather than sentiment," Adam said.

"I can confirm that there are problems in the manufacturing export sector with the [NZ] dollar rising."

As a sector, manufacturing represents about 10 per cent of gross domestic product, employing around 175,000 people full time and representing 11.6 per cent of employees across all industries.

Despite the Reserve Bank's best efforts the NZ dollar has remained stubbornly high. Against the US dollar the kiwi has been on a rising trend, trading yesterday at US73.2c from US69.8c in July. Against the Aussie, the kiwi has gained A3c in the past month alone, trading at just more than A96c yesterday.

The NZ/Australian cross rate has spent most of the past two years well above the A90c mark and has come close to reaching parity. Some currency analysts have predicted the kiwi will level with the Aussie by 2018.

The survey showed year-on-year export sales have moved from their slight fall in June to a more significant decrease of 20.48 per cent in July. Adam said non-food manufacturing sector exports were worth $7 billion to $8b a year and were a significant part of the economy that was often overlooked.

For manufactured exports, Australia is New Zealand's biggest destination by far - taking about 30 per cent.

"People focus on the US dollar but the biggest market by a long shot is Australia," he said. "The Australian dollar matters a lot and that's particularly bad and more of a concern than the US dollar."

Despite the sales results and lower confidence, there remains a positive view for the future among manufacturers, Adam said.

The Bank of New Zealand said its projections showed the cross rate hovering within a range of A93-A96c in the next year or so, as it has done during recent months.

"The further we look into the future, the more weight we put on the economic fundamentals," it said.

"And on that basis, our medium-term NZD/AUD projections track higher, with our central forecast showing parity reached, and sustained, by mid-2018."