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N.Z. Manufacturing, Confidence Fall in Signs of Sluggish Rebound

Oct. 11 (Bloomberg) -- New Zealand manufacturing contracted for a third month in September as consumer confidence fell to three-month low, adding to signs of weak economic growth and a prolonged period of record-low interest rates.

The performance of manufacturing index rose to 48.2 from a revised 47.4 in August, the third month it has remained below the 50 level signaling the industry is contracting, Bank of New Zealand Ltd. and Business New Zealand said in an e-mailed report today. An index of consumer confidence fell to 110.5 this month from 111.9 in September, ANZ Bank New Zealand Ltd. said in another report.

Manufacturers faced with slowing domestic demand and weak export markets are reducing production and firing workers, while consumers are reluctant to spend, adding to signs of slower economic growth after a 2.6 percent expansion in the year through June. The central bank has kept benchmark borrowing costs at 2.5 percent since March last year, and four of 16 economists surveyed by Bloomberg News expect a rate rise before March 31 next year.

“Households have become more circumspect over the future and have pared back lofty expectations on the general economic outlook,” Mark Smith, senior economist at ANZ Bank in Wellington, said in the report. “Softer employment anecdotes are emerging which, with a high household debt overhang, are expected to encourage greater restraint on the part of consumers.”

The New Zealand dollar bought 81.60 U.S. cents as of 3 p.m. in Wellington, after touching a one-month low of 81.46 cents yesterday.

2% Growth

Consumer confidence when combined with the monthly survey of business opinion, indicates growth of about 2 percent in early 2013, ANZ Bank said.

Traders are betting the weak growth outlook may prompt Reserve Bank of New Zealand Governor Graeme Wheeler, who took over the role in late September, to lower the official cash rate. There is a 65 percent chance of a rate cut by March, according to swaps data compiled by Bloomberg.

The New Zealand dollar’s 5 percent gain this year makes it the best-performing Group of 10 currencies and has curbed returns from exports. Prime Minister John Key has dismissed calls from his political opponents to weaken the currency to help struggling businesses.

“Talk that the industry is in crisis is overblown,” Craig Ebert, senior economist at Bank of New Zealand in Wellington, said in the manufacturing report. “While the data are worryingly weak, they are about current conditions rather than the way ahead. Expectations for output over the next three months remain positive.”

Norske Skog

Four of the five sub-indexes were in contraction, with the new orders gauge falling to the lowest since May 2009, today’s report showed.

Paper maker Norske Skogindustrier ASA last month said it will close part of a plant and fire workers in New Zealand, citing costs and over capacity in the region.

More consumers said they were financially worse off than a year earlier and fewer expect to be better off in a year, ANZ Bank said, citing its survey of 1,019 people.

A net 7 percent expect the economy will deteriorate over the next 12 months, today’s report showed. The proportion saying now is a good time to buy a major household item was the lowest in four months, it showed.

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

To contact the editor responsible for this story: Shamim Adam at sadam2@bloomberg.net

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