New Zealand Manufacturing Adds to Signs Economy Is in Recession

By Tracy Withers

Sept. 15 (Bloomberg) -- New Zealand manufacturing slowed in the second quarter, adding to signs the economy was in a recession in the first half of the year.

Manufacturing sales, excluding inflation, fell 1 percent from the first quarter when they declined 0.2 percent, Statistics New Zealand said today in Wellington. Economists adjust that number to account for inventory build-up to match the way the statistics bureau reports gross domestic product.

Reserve Bank Governor Alan Bollard has cut the benchmark interest rate by three-quarters of a percentage point the past seven weeks as the economy contracts. The central bank said the economy is probably in a recession for the first time in 10 years.

``Manufacturing was on the soft side and will probably shave a bit off expectations'' for second-quarter GDP, said Craig Ebert, senior markets economist at Bank of New Zealand Ltd. in Wellington.

Ebert estimates the economy contracted 0.4 percent in the second quarter. The GDP report will be published on Sept. 26.

``There are probably risks toward the negative'' around that forecast, he said. Before today, he was expecting a 0.3 percent contraction.

Manufacturing was curbed after a drought slowed milk production and forced farmers to send stock for slaughter earlier than usual. Sales from the meat and dairy industry fell 9.4 percent in the quarter, the statistics agency said.

Retail Sales

The slowdown in second-quarter manufacturing adds to falling retail sales, construction and exports, suggesting the economy shrank further after it contracted 0.3 percent in the first quarter.

Retail spending slumped 1.5 percent in the three months ended March 31, the biggest drop in at least 13 years. Construction fell 7.3 percent and exports slipped 3.7 percent, according to reports last week.

``Confidence in manufacturing plunged to low levels in the first half,'' said Jane Turner, economist at ASB Bank Ltd. in Auckland. ``Demand has weakened substantially'' and the currency was high early in 2008, which slowed orders, she said.

Bollard cut the official cash rate a quarter point on July 24, his first reduction in five years, saying the weak economy would ease inflation. Last week, he cut by a half point, more than expected by most economists, to 7.5 percent.

Twelve of 15 economists surveyed by Bloomberg News last week expect Bollard to cut the benchmark interest rate by a quarter point at his next review on Oct. 23. Three expect a half-point reduction.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.