Comments

David Thompson Posted:
So very, very true. It beggars belief that we consider ourselves to be a developed nation when so much of our economy is based on selling milk powder or logs. BTW, I own a Plinius amplifier (my second) that drives a set of Theophany speakers.
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David Thompson Posted:
A robust but sobering report. It concerns me that confidence is rising, yet sales and exports are down and "manufacturers and exporters are still lagging behind other sectors". Surely we should wait until we're earning more money before we start spending more?
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siemens Posted:
Yes true! The only thing that will never die in this world is the nature and its science behind it. Great post.
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Kieran Ormandy Posted:
Thanks for the question Steven, Germany has seen increases in manufacturing employment since 2009, and Switzerland has had stable manufacturing employment between 2006 – 2011, even in the face of ongoing Euro-zone issues. Korea has seen increases in manufacturing employment since 2008 and Israel experienced large increases since 1998, while being stable over the last 4 years. Singapore has had increases in manufacturing employment over the last two years. These countries all value their manufacturing sectors and work to protect them, this is reflected in the above numbers and their performance through the GFC. Note data around the above examples was sourced from OECD labour market stats.
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John Walley Posted:
Point one: you should have no doubt what our Association says publically represent the views of our members. Point two: we don’t knee jerk responses, if you trace back our comments around NZPower you will see them link all the way back to our research in 2004 and 2005. All that material is fully linked from our comments above. Point three: you will note our comments on major users, sadly the same advantage does not accrue to smaller industrial users. The perverse incentives of the LRMC approach in all this are well known. Point four: the NZMEA is not like any other Association in New Zealand we admit only manufacturers and exporters into membership, and our public expressions are the views of that restricted membership.
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8/2/13

New Year, Same Problems


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As 2013 opens we can recall what 2012 delivered and what the coming year might bring. Given what we see and hear, chances are we can expect more of the same; an ever climbing exchange rate, soft markets and meager returns for many manufacturers and exporters.

New Zealand policy makers seem locked in the thinking of the 20th century; the world has changed but many of our politicians and officials are stuck in a world of inflation targeting and economic ambivalence. This is in stark contrast to a world of new monetary and fiscal thinking. That contrast is driving up the New Zealand dollar, damaging the competitiveness and balance sheets of our exporters and, most damaging in the long term, annihilating productive investment. A persistently overvalued currency has an insidious impact on industrial renewal – this is the true crisis facing New Zealand.

It is almost a proverb in New Zealand that companies grow only to be sold to larger offshore interests leaving little more than an import distribution business in New Zealand, Fisher and Paykel and Haier for example. The flipside of the sell-out proverb is the cargo cult in government procurement, always happier to buy offshore ignoring local suppliers. So what plays out in the economy is a string of manufacturers cutting back or closing New Zealand production facilities; all bad news for employment. We are currently experiencing the highest unemployment rate since 1999, at 7.2% in the September quarter.

We saw a change in Governor of the Reserve Bank, a less flexible Policy Target Agreement and no change to the Reserve Bank Act. We had hoped the change would see a more tangible commitment to the real economy, but this has not happened. The OCR remained unchanged at 2.5% all year, despite extraordinarily low inflationary pressures in the economy and an inflation rate falling below the 1-3% target band for much of the year, ending at 0.9% for the December quarter.

The Parliamentary Inquiry into Manufacturing was triggered by high levels of job losses throughout 2012. It will be interesting to see what happens, for those speaking on the first day it was clear that the top three things that matter to exporting manufacturers are all the exchange rate.

For the rest of this year it is likely that Europe will continue to respond to the lessons of the crisis, fiscal policy be reformed and a Tobin (financial transaction) Tax implemented. The US will continue to print money until the unemployment rate falls to 5.5% (so much for inflation targeting). The Australian economy looks weaker by the month. More generally the world will likely move from fiscal consolidation/austerity call it what you will, towards a more employment friendly position that might see a lift in some sales volumes.

New Zealand policy makers are likely to do little to respond to all this. The real economy will continue to be treated as an optional extra and we will continue to live the fantasy funded by an inflated currency. Our current account will slip ever deeper into deficit and Government will continue to focus only on the fiscal position.

With low inflationary pressures, there is room for the RBNZ to cut the OCR, to boost growth and try to take some pressure off the New Zealand Dollar..

As the Christchurch rebuild starts to pick up this year this may provide some increased domestic demand for manufacturers who supply to the industry, although we have not seen any real indication that this has had any effect yet through our business survey. This may provide some boost, but cannot be seen as a “fix” for manufacturers; promoting and facilitating exports will have a more potent and lasting effect. The rebuild needs to be kept in context, it is a single big impulse of $30b but that will be spread over, let’s say a decade; exports amount to $60b each and every year so both are important but it is clear where the emphasis should be.

In reality, these, and other issues affecting the real economy are not new. They existed in 2012 and the years before. We wonder how bad things really have to get to trigger a commitment to change the game for New Zealand’s real economy?
 



tags: exchange rate, currency, ocr, rbnz, manufacturing

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