Manufacturing back to high levels

The strength of the Australian economy helped drive manufacturing in New Zealand to its highest level in almost two-and-a-half years last month.

The Bank of New Zealand's Business New Zealand Performance of Manufacturing Index (PMI) shows the seasonally adjusted expansion stood at 56.3 for March, 2.7 points up from February and the highest level of overall activity since November 2007.

The March 2010 result was also the third highest March value since the survey began in 2002, with the only the 2004 and 2007 figures displaying stronger growth.

A PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining.

Bank of New Zealand economist Doug Steel said the strength of the Australian economy and higher interest rates, which have seen the Australian dollar well bid against the Kiwi dollar, were helping drive the recovery.

"This provides a win-win for New Zealand manufacturers supplying the Australian market. Higher incomes breed an expanding market and the lower New Zealand dollar helps make Kiwi products more competitive against their Australian equivalents.

"However we need to be mindful of the risks associated with increasing dependence on effectively one market, especially in light of the China-driven commodity boom."

Business New Zealand's executive director for manufacturing Catherine Beard said the New Zealand results fitted well with the global scene of manufacturing as well as showing levels of expansion not seen for some time.

However, it was important to remember that ongoing solid results were required to catch up what was lost during 2008 and 2009.

"While the pick up in positive comments in the PMI is encouraging, as part of day-to-day discussions members are still reporting a wide range of conditions depending on their sector and whether they are domestically focussed or also exporting," Beard said.

At best, any recovery was seen as patchy, although there was a general air of optimism for further pickup for the second half of 2010, she said.

Unadjusted results by region were: Canterbury region (58.6) experienced a slight dip from February. Both the Northern (57.8) and Otago/Southland (57.5) regions experienced similar levels of expansion, with both at their highest level since November 2009. While the Central region (49.0) remains in contraction, the March result was an improvement on February.