NZ July business PMI expands at a slower pace, points to sluggishness in manufacturing

New Zealand’s business Purchasing Managers’ Index (PMI) expanded at a slower pace during the month of July, pointing towards sluggishness in the manufacturing sector of the country, in a sign that a stronger local currency was weighing on demand.

The Business NZ performance of manufacturing index (PMI) fell to 55.8 in July from 57.7 in June on a scale where levels above 50 signify expansion in economic activity. Growth in manufacturing has been positive for over three-and-a-half years, with gains accelerating over the past 12 months.

In addition, manufacturing accounts for roughly 12 percent of New Zealand’s gross domestic product, a proportion that is in line with many other advanced industrialized economies. BusinessNZ's executive director for manufacturing Catherine Beard said that while both production and new orders came back slightly from strong activity levels, employment has been a slow and steady burner in terms of activity.

Moreover, expansion of employment reached 54.6 in July, which was the fifth consecutive monthly increase in activity. It was also the highest level of activity for this sub-index since October 2014, data showed.

"The high exchange rate is adding further pressure to the export and import competing sectors. This makes it difficult for the bank to meet its inflation objective," said Graeme Wheeler, Governor, Reserve Bank of New Zealand in his statement.

Meanwhile, the New Zealand dollar experienced tremendous strength in recent months despite the central bank delivering multiple rate cuts to stimulate growth and inflation. The RBNZ on Thursday reduced its official cash rate to a new record low to counteract the growing threat of deflation.