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New Zealand's Manufacturing Sector

New Zealand’s manufacturing sector continued its downward trend in May, extending a prolonged period of contraction, according to the latest BNZ – BusinessNZ Performance of Manufacturing Index (PMI). The PMI for May fell to 47.2, down from 48.8 in April, marking the sector’s 15th consecutive month of contraction. A reading below 50 indicates contraction, and New Zealand’s manufacturing has now been under this threshold for over a year.

BusinessNZ Director Catherine Beard emphasized that the May results offered little hope for a positive turnaround in the sector. She pointed out that new orders have been contracting for 21 consecutive months, which significantly hinders the sector’s overall expansion. “To put this into perspective, during the global financial crisis of 2008/09, new orders remained in contraction for 14 consecutive months,” Beard said. The prolonged weakness in new orders underscores the challenges the sector faces in achieving growth.

Despite the ongoing challenges, there was a slight improvement in sentiment among manufacturers. The proportion of negative comments dropped to 63.5% in May, down from 69% in April and 65% in March, indicating a marginally less pessimistic outlook. This slight improvement in sentiment suggests that while the sector is still struggling, the level of concern among manufacturers may be easing somewhat.

Looking ahead, the economic outlook remains challenging. Data expected next week is anticipated to show that New Zealand’s farm-rich economy remained in recession in the first quarter, further compounding the manufacturing sector’s struggles. The recessionary pressures in the broader economy are likely to continue weighing on manufacturing activity, making a swift recovery unlikely.

In summary, New Zealand’s manufacturing sector remains in a deep and extended contraction, with little immediate prospect of recovery. The ongoing decline in new orders and overall economic weakness continue to pose significant challenges, although there are faint signs of improving sentiment among manufacturers.

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