Good prospects for manufacturing

Good prospects for manufacturing

There’s a lot to celebrate about New Zealand manufacturing in 2005. Export prospects are promising because of good growth forecasts in Australia, the US, UK, China and other places. In particular, it’s great that the Australian economy is set to continue its growth trajectory as a stronger Australian economy can buy a lot of New Zealand exports.

Our international prospects are important because the domestic economy that has sustained our growth since 2001 – with GDP growth over 4% for 2004 – is forecast to slow to around 2.3 – 3% this year. This makes it an ideal time for New Zealand manufacturers to renew their focus on world markets.

It’s also a good time to celebrate the ETM sector – ‘elaborately transformed manufactures’ – those with the highest amount of processing and usually the highest value. Our ETM exports are going well, having grown by a third in the last five years and now earning around $9 billion a year. Complementing our strengths in processed and manufactured commodities, ETMs can help us grow faster into a high skill, high wage economy. They’re now an important part of our overseas trading pattern, with Australia buying 45% of our ETM exports, the US 18% and Japan 7%.

Exporters were challenged by the high New Zealand dollar in 2004. Many rode it well, investing in forward cover or using the opportunity to buy cheaper capital equipment from overseas. Encouragingly, this was in a context of generally increased business investment that grew 13.5% in the year ending June 2004. The challenge of the high dollar may recede somewhat in 2005 – most economists now expect the NZ$ to ease back gradually over the next two years.

A lot of information about manufacturers’ experiences of and intentions toward the export market is gained from the PMI (ANZ-BusinessNZ Performance of Manufacturing Index). PMI methodology, also used by the US, Australia, Japan and the Eurozone, uses data from a large range of manufacturing companies to gauge the expansion and contraction of manufacturing on a national basis.

Our PMI has now been going more than two years and the good news is that it has shown general expansion in manufacturing activity since its inception. The most recent PMI was 65.9 (scores above 50 indicate expansion while those below 50 indicate contraction). Even better, the PMI’s strongest sub-index has consistently been ‘new orders’, indicating continued expansion in the future. ‘New orders’ has been the highest of the PMI sub-indexes for 11 of the last 12 months.

Another statistic that bodes well for high value added exports is the amount spent on research and development by manufacturing – 57% of R&D investment is made by the manufacturing sector, staking its claim to lead the knowledge economy in New Zealand.

Companies that are ‘knowledge leaders’ are not hard to find – a firm in Royal Oak that makes domestic heaters with more computing capacity than the first Apollo mooncraft, a Porirua company that makes wireless technology for remote locations all over the world, a Glenfield firm that’s developed a jam-free winch for boating safety, a Bromley company that’s created industry standards for power and sports boats, a Riccarton company that is a world leader in designing and making communications cable, a Linton company making high-tech derivatives from animal by-products, a Te Rapa firm that serves the dairy industry and also makes world-best robotics, a Morningside company making precision components for the medical sector (as well as making the machines to make the components) – all examples of productive investment in the knowledge economy.

Manufacturing sometimes gets overshadowed by our agricultural commodity successes, but it’s doing well and looks set to do even better in the future – here’s to New Zealand manufacturing in 2005!

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2 Feb, 2005

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