KEY POINTS:
The persistently high exchange rate is starting to influence producers' long-term investment plans, says the Canterbury Manufacturers' Association.
After the release of its latest confidence survey, association chief executive John Walley said manufacturers had previously looked beyond the exchange rate when deciding whether to invest.
"But we've been up at this level now for so long people are starting to say ... 'If the exchange rate doesn't drop back I'm never going to make any money off this piece of plant or this machine'," Walley said.
The idea that manufacturers had learned to live with the high exchange rate was nonsensical, he said.
"I'm getting some comments now about stranded assets and investment decisions being postponed until there is a more benign trajectory on the exchange rate."
The association's latest survey showed sales in December were up by 3.2 per cent compared with the year before. But the performance index (a combination of profitability and cashflow) was 91.5 in December - down from 101 in November. A reading below 100 shows contraction.
The change index (capacity utilisation, staff levels, orders and inventories) was 100, down from 107, and the forecast index (investment, sales, profitability and staff) dropped to 102 from 108.
Confidence among the association's members fell from a net 40 per cent to zero.
However, despite the drop in some results, firms were reporting strong forward orders, Walley said.
"It's hard to be really pessimistic at the moment, the first half of 2007 is feeling reasonable," he said.
There was hope of growth in the coming months "however there is also concern that things could change very quickly".
Manufacturing outlook
* December sales up 3.2 per cent on year before.
* Confidence and performance fall back.
* High dollar starting to affect investment.
