KEY POINTS:
Graeme Clegg, whose company sends health pills by the truckload into Southeast Asian countries, has just returned from a tour of duty. Talk of an American-led recession has sent shudders through countries like Malaysia, Taiwan and Singapore, with the Malaysian sharemarket taking several hits.
The US credit crunch is expected to ripple into these markets, raising the cost of capital and leaving less money in consumer pockets, says Clegg, chairman of New Image International, whose turnover increased 136 per cent last financial year to $25.6 million.
At home, the firm is paying higher prices for raw materials from the dairy sector.
But there's opportunity in times of crisis, says Clegg. "If your business has a solid base this is a time when acquisitions or increased business can be picked up."
Plans include new products such as a "rejuvenating" skin care range, and entering the huge Chinese market.
The imminent signing of a free trade agreement with China could well offset the effects of the US downturn on global markets, with New Zealand products gaining duty-free status.
"We're well equipped to cope - we've been through rougher times than this. We are expanding substantially and expect growth to continue."
But he adds: "We don't get any warnings that something's wrong with financial institutions or banks - the day we read about them is the day the damage is done. A lot of things are beyond our financial control."
Clegg's sunny outlook broadly speaks for the export manufacturing sector as a whole. Yet this is a sector whose competitiveness has been hurt by the high New Zealand dollar and which, like others, faces high borrowing costs for new equipment or expansion. These are expected to continue, or worsen, with the credit crisis.
The Business NZ-BNZ Performance of Manufacturing Index (PMI) suggests manufacturing expansion is on a knife-edge. The index is based on a monthly survey of activity levels, covering production, new orders, employment and other indicators. A reading above 50 points indicates manufacturing is expanding, below 50 indicates it is contracting. Last month the index fell two points to 52.2, its lowest level since February 2006.
Business NZ economist Steve Summers says disturbing trends include fall-offs in new orders and production.
"We're at a bit of a turning point in the manufacturing sector. There's certainly a possibility that it could flow through eventually to a below-50 result."
High interest rates are likely to keep the exchange rate up for some time but manufacturers seem almost to have come to terms with the dollar.
"There are indications a lot of manufacturers are being smarter and maybe finding new markets. If they're dipping their toes in the American market maybe they're better off going into Australia or China. For most manufacturers the first port of call is Australia and it's still going okay."
And the high dollar helps when firms are investing in imported equipment.
Northern Employers and Manufacturers Association spokesman Gilbert Peterson says the skilled labour shortage is prompting manufacturers to improve productivity by investing in new plant and equipment which reduces their labour dependence.
"That should work through to higher productivity that's good for the whole economy."
Despite fears of a technical recession - two consecutive quarters of declining GDP - remember that manufacturing is still in growth mode, says Peterson.
Throw in the farm exports sector and record-low unemployment, and New Zealand is well-positioned to weather the looming global economic downturn.
"If the US market weakens there's still excellent prospects that Australia and Asian markets can take more of our food and beverages, machinery and equipment," says Peterson.
"There's a degree of confidence but if you're having to borrow you are paying a high interest rate."
According to Statistics NZ, manufacturing sales increased 8.3 per cent ($1536 million) during the December 2007 quarter - the largest increase since the series began in the December 1992 quarter.
The booming dairy export and meat sector dominated the rise, but keeping pace were "other food" manufacturing (up 8 per cent to $159 million) and machinery and equipment manufacturing (up 8.3 per cent to $148 million).
We're coming off what Reserve Bank governor Alan Bollard terms "the longest period of economic growth since the post-World War II era". On the back of the dairying boom, our terms of trade - the relative prices of exports compared with imports - are the most favourable since 1974.
