New Zealand’s factories went backwards in May, with the country’s main gauge of manufacturing activity slipping below the line that separates growth from decline for the first time in almost a year.
The BNZ-BusinessNZ Performance of Manufacturing Index fell to 49.9 in May, down from 50.4 in April and well short of the sector’s long-run average of 52.5. Any reading above 50 points to expansion across the sector as a whole, while anything below it signals contraction. May’s result was the first time the index had dipped under 50 since June last year, when it bottomed out at 49.3.
The drop caps a soft run for a part of the economy that employs hundreds of thousands of New Zealanders and turns out everything from processed food and timber products to machinery and building materials. After a brisk start to the year, when the index sat at 52.8 in March, momentum has steadily drained away over the autumn.
BusinessNZ’s advocacy director Catherine Beard said the figures reflected a tough trading environment that many firms had been describing for months. Speaking to interest.co.nz, she said manufacturers were “obviously struggling in the face of a combination of adverse influences, including lack of customer demand, high fuel prices and the conflict in the Middle East.”
That last point matters more than it might first appear. The flare-up in the Middle East has pushed oil prices higher, and for a sector that runs on diesel, gas and electricity to keep machines moving and trucks on the road, higher energy costs land straight on the bottom line. Fuel is also feeding through to wider inflation, with forecasters expecting headline price rises to climb again over the middle of the year, which in turn keeps a lid on the household spending that manufacturers ultimately rely on.
Beneath the headline number, the detail tells a story of a sector treading water rather than sinking outright. Production landed exactly on 50.0 and new orders just nudged into positive territory at 50.1, so neither output nor the pipeline of future work collapsed. Deliveries held up at 51.9 and finished stocks rose to 53.8, although a build-up of unsold goods on the shelf is rarely a sign of confidence. It more often means product is being made faster than customers are buying it.
The most striking split in the survey was between big and small operators. Large manufacturers with more than 100 staff recorded a buoyant reading of 57.6, the kind of number associated with solid growth. At the other end, the smallest firms with 10 or fewer workers slumped to 46.0. In other words, the businesses with the deepest pockets, the broadest customer bases and the most room to ride out a soft patch are doing fine, while the small operators that make up the bulk of the sector are bearing the brunt of weak demand.
That divide echoes a pattern showing up right across the New Zealand economy this year. Larger, well-capitalised companies are managing, while smaller firms with thinner margins are the ones closing their doors or holding off on hiring. The labour market remains soft, business closures have outpaced new openings in several industries, and confidence has been slow to rebuild even as the Reserve Bank’s earlier interest rate cuts work their way through the system.
BNZ senior economist Stephen Toplis struck a measured note, suggesting the sector was likely to go through a “flat patch” over the winter months before conditions improved later in the year. The bank and most other forecasters still expect the wider economy to pick up speed through 2026 and into 2027, but the manufacturing survey is a reminder that the recovery so far has been patchy and uneven rather than the broad-based bounce many had hoped for.
The result also sits awkwardly alongside some genuinely strong numbers coming out of the primary sector. New Zealand’s food and fibre exports are on track for a record year of around 64 billion dollars, lifted by firm prices for dairy, beef and apples and a bumper kiwifruit crop. The contrast highlights how lopsided the current upturn is. The parts of the economy plugged into hungry global commodity markets are thriving, while the domestically focused manufacturers serving local builders, retailers and households are still waiting for customers to come back.
For now, the manufacturing index joins a growing list of indicators painting a picture of an economy that has stopped falling but is yet to convincingly turn the corner. A single month below 50 does not make a downturn, and the dip was a shallow one. But with energy prices unsettled, demand subdued and the smallest firms under real pressure, the next couple of readings will be watched closely for signs of whether May was a winter wobble or the start of something more stubborn.
The BNZ-BusinessNZ index is published monthly and is one of the most timely reads available on how the country’s factories are faring. The full release is available on the BusinessNZ website.
What are you seeing in your own industry, is business picking up or still stuck in the doldrums? Share your view in the comments below.
This article was written by AI, briefed to report the facts, hopefully without some of the bias people bring to the job π
Leave a Reply