KEY POINTS:
The manufacturing sector has improved from a record low point in November but is still declining, the latest survey by Business NZ shows.
The seasonally-adjusted Bank of New Zealand-Business NZ Performance of Manufacturing Index for December was 42.5 - the second lowest month on record and below 50, which indicated the sector was declining. December's result was higher than the 35.2 recorded the previous month but the eighth consecutive month of decline.
Business NZ chief executive Phil O'Reilly said the sector had been in decline for three quarters of 2008, which had been an extremely tough year for manufacturers.
The improved competitiveness of the dollar and the likelihood of more interest rate cuts brought some hope, but the overall picture was very constrained, O'Reilly said.
"Comments from manufacturers for December were some of the shortest and sharpest that we've received, focusing on the fundamental aspects of low demand, general economic downturn and uncertainty," he said.
Bank of New Zealand senior markets economist Craig Ebert said sagging world demand was becoming 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," Ebert said.
Four of the five main indicies contracted with production 39.9, employment 41.9, new orders 42.2 and deliveries of raw materials 43.7, while finished stocks expanded in December on 50.5. Most sub-groups recorded a contraction, including petroleum, coal, chemical and associated products 31.1, metal product manufacturing 35.3 and machinery and equipment 41.4.
The food, beverage and tobacco group showed expansion on 61.8, with strong results for production and new orders.