New Zealand’s manufacturing industry saw further contractionary conditions in the last month of 2023, according to the latest BusinessNZ Performance of Manufacturing Index (PMI).
The sector’s seasonally adjusted PMI ended 2023 with a significant decline in factory activity with a rating of 43.1, down from November’s 46.5.
The result marks the lowest level of activity in the market since October and the PMI’s 10th consecutive month of decline.
Catherine Beard, BusinessNZ’s director for advocacy, said the December result was the second lowest in 2023 and highlights how tough the second half of 2023 has been for manufacturers.
“While the year started off with consecutive results in expansion, since then it has gotten progressively harder for manufacturers with July-December activity averaging only 45.0, compared with January-June averaging 49.2. Also of note that for December, the key sub-index of Production (40.5) was at its lowest point for a non-lockdown COVID month since March 2009.”
Manufacturers also continued to lay off staff in December in line with production cuts.
Meanwhile, the PMI indicated that labour is no longer a major constraint to production and the significant upward pressure that has been on wages for the last few years should now be diminishing.
The domestic manufacturing sector is largely dependent on four factors: domestic demand, food production, construction, and exports.
It will thus be supported by the country’s strong migration-driven population growth and the spending of a growing number of tourists. In short, more people are spending more.
However, headwinds remain strong as consumers continue to face rising prices, eroding disposable incomes, and the impact of an ongoing adjustment to interest rates.
Furthermore, the construction sector is showing little sign of life impacted by weakening consumer spending power and the fact that the costs of construction have purchased new buildings prohibitive for many.
December 2023 also saw a rise in negative outlook from manufacturers, which stood at 61 per cent, up from November’s 58.7 per cent.
BusinessNZ said ongoing issues around a lack of demand and sales were the overriding theme among manufacturers.
“The December PMI reaffirms our view that economic conditions remain very difficult. While we expect the economy, and the manufacturing sector, to gain some momentum by end 2024, the next few months will remain challenging especially with retail spending and construction activity being under pressure,” said Stephen Toplis, head of research at BusinessNZ.
