The zig-zag recovery continues

New Zealand's zig-zag economic recovery continues.Yesterday: bad news for the retail sector, with the sales graph for core retail sales trending down for the first time since 1995.Today, the latest performance-manufacturing index, from Business New Zealand/BNZ, shows the highest output for 28 months.“Production is cranking up,” BNZ economics Doug Steel says.However, Business New Zealand ‘s executive director for manufacturing Catherine Beard says there is still a number of areas where the recovery has yet to be felt.

New Zealand’s zig-zag economic recovery continues.

Yesterday: bad news for the retail sector, with the sales graph for core retail sales trending down for the first time since 1995.

Today, the latest performance-manufacturing index, from Business New Zealand/BNZ, shows the highest output for 28 months.

“Production is cranking up,” BNZ economics Doug Steel says.

However, Business New Zealand ‘s executive director for manufacturing Catherine Beard says there is still a number of areas where the recovery has yet to be felt.

“At best, any “recovery” is seen as patchy, and there remains considerable uncertainty, although there is a general air of optimism for further pickup in the second half of 2010 and beyond.

“After six months of solid, if not spectacular expansion, we have now reached a phase where monthly results are consistent, and new orders continue to drive activity, which we would hope will flow through to increasing employment if the trend continues.”

Mr Steel puts the increase down to several factors – one being the simple fact it is off a very low base, after a long contraction.

Other factors though are more uplifting.

One is the strength of the Australian economy, coupled with a transtasman exchange rate which does not, for once, hinder New Zealand exporters.

“Not only have Australian incomes lifted with economic growth but the stronger Australian currency also boosts the purchasing power of those incomes in New Zealand. Or put another way, higher incomes breed an expanding market and the lower NZ dollar helps make kiwi products more competitive against their Australian equivalents.”

The third factor is firms restocking after the downturn. The most recent New Zealand Institute of Economic Research quarterly survey of business opinion shows stock levels amongst local firms are at historic lows.

That should be positive for GDP growth in coming months, Mr Steel said, “assuming demand remains robust and inventory levels are to return to normal.”

However, there is a note of caution on this issue: future orders remain robust in the short term but once the re-stocking phase is over there could be some slippage in demand, he said.