KEY POINTS:
The head of the Canterbury Manufacturers Association says inflation in the local economy is killing the competitiveness of the tradeable sector, particularly exporters.
Monthly survey results from the CMA, a barometer for the manufacturing sector, show total sales among Canterbury manufacturers in August rose just under 1.5 per cent compared with a year ago.
Export sales dropped 6.8 per cent in August (compared with 2.5 per cent), but they were offset by domestic sales rising just over 9 per cent (compared with negative 5 per cent).
The survey covered annualised sales of $402 million, 44 per cent of which was in exports.
CMA chief executive John Walley said the latest survey confirmed Government policies were delivering "two economies" - a negative tradeables sector which covers tradeable hard goods and a positive non-tradeables sector which covers local services and materials like cement or gravel.
The large number of infrastructure projects and strong construction sector, for example, had created a positive climate for suppliers who did not have to compete with international rivals, unlike manufacturers of export goods.
Walley said monetary policy was critical: higher interest rates were felt across all sectors but the already disadvantaged tradeables sector felt it more keenly and even more so when higher exchange rates reduced returns.
"The much higher levels of inflation in the non-tradeables sector are creating a response that is killing the competitiveness of the tradeable sector and we continue to export activity and capability offshore as a response. This is a short-sighted solution that will bring long-term problems; there has to be a smarter way."
Walley said companies within supply chains were particularly under pressure.
Larger companies were looking to cut costs and shift activity, which was reducing local orders.
"This is due in large part to the impact of the 'China price'. Some respondents are undertaking contract work, while others re-evaluate their business models in order to give themselves breathing space. For these firms, sales volumes are down and margins are under pressure, or gone altogether."
- NZPA
