15 Nov 2013

Manufacturing index on a roll - economist

7:56 am on 15 November 2013

The manufacturing sector expanded for the 11th month in a row in October.

The latest BNZ-Business New Zealand performance of manufacturing index rose 1.5 points to 55.7. A reading above 50 indicates expansion.

Compared with 12 months ago, the index is now at the highest level since 2007.

BNZ economist Craig Ebert says unusually, all the parts that make up the index were in expansion mode.

"For the first time in a while, all of the categories are in expansion mode ... the pick-up that we're seeing is becoming more generalised."

Lack of manufacturing capacity 'worrying'

Mr Ebert says the BNZ is forecasting the economy to grow by 3.2% next year and 2.2% in 2015, but there is the potential those predictions are too conservative and will need to be upgraded.

He says the lack of capacity in the manufacturing sector to cope with such strong growth is a very real concern, and there are already signs it's starting to force prices up.

Mr Ebert says there are concerns about whether the sector is able to cope.

He says there may not be the spare capacity that people assume, partly because of a lack of significant investment in recent years.

Mr Ebert says the problem is already hitting the construction sector where there is a problem of enough capital and labour is becoming an issue.

He says a supply imbalance is creating inflation pressures, which could result in interest rates rising sooner or faster than expected.