24 Mar 2014

Manufacturers warned of headwinds

7:08 pm on 24 March 2014

Headwinds against manufacturers exporting to Australia are likely to remain strong, with the Australian dollar expected to stay weak against the Kiwi for much of this year, an economist warns.

Australia is New Zealand's most important market for manufactured exports, and a weaker currency across the Tasman has meant the kiwi has appreciated by nearly 20 percent during the past year.

ASB Bank chief economist Nick Tuffley said this had resulted in New Zealand-made goods becoming more expensive in Australia.

"What we're seeing happening over the last six to nine months is that we've strengthened quite a lot against the Australian dollar, so for our manufacturing exporters to Australia, we haven't got that safety valve that that we potentially had before," Mr Tuffley said.

Australia was the most significant market for our manufactured goods, and took most of our manufactured exports, he said. That meant there would be some exchange rate headwinds, and that was significant for the overall export focus part of the manufacturing industry.

As well, the Australian economy was rebalancing away from mining investment, which New Zealand did not have a lot of exposure to. Instead it was focussing more on the retail, housing and construction areas, which we did have more exposure to, Mr Tuffley said.

"So there are some underlying shifts but in the short-term, that exchange rate impact will be a headwind for exporters to Australia."