Strength in the dairy and meat manufacturing industries has kept New Zealand's overall manufacturing sector from showing large declines in sales over the previous year, figures released by Statistics New Zealand show.

Economists say the figures confirm March quarter GDP contracted significantly and the second quarter looks like contracting sharply as well, extending the recession into at least its 7th quarter. The strong New Zealand dollar in recent months and further falls in dairy commodity prices will do little to lift the economy out of recession before the end of the year, ensuring the OCR is likely to stay at or below 2.5% into 2010, as promised by the Reserve Bank.

Unadjusted manufacturing sales rose 0.5% in the March quarter from the same period a year ago, however this was due to a 12.9% rise in meat and dairy product manufacturing sales, which made up for 38% of total sales in the quarter. With this industry taken away, manufacturing sales fell 6% from a year ago, led by large drops in wood and metal product manufacturing.

The dairy and meat product manufacturing industry has been increasing its stake in total manufacturing sales over the last couple of years. From accounting for 27% of total sales in the March quarter 2004, it had risen to 34% last year and jumped further to 38% in the first quarter of 2009.

Seasonally adjusted figures show total manufacturing sales fell 0.9% in the March quarter from the December quarter. Excluding the meat and dairy industry, sales fell 6.5%, the largest seasonally adjusted quarterly fall since the current series began in June 1994, Stats NZ said. Excluding meat and dairy, sales fell by 15.5% from the December quarter.

The amount of salaries and wages paid in the manufacturing sector fell 2.5% from the March 2008 quarter, and were down 6% from December. The meat and dairy industries were not exempt from this, with salaries and wages down 2.2% from a year ago.

The second biggest contributor to unadjusted total sales in March 2009 was for other food manufacturing, which fell 2.5% from a year ago. These sales accounted for 10% of total sales.

Wood product manufacturing sales fell 15.9% in March from a year ago, following year-on year falls in each quarter from March 2008 and through the year. The proportion of total sales fell from 6% in March 2007 to 4% in 2009.

Structural, sheet and fabricated metal manufacturing sales were down 9.5% from last year.

ASB economist Jane Turner said that the figures showing weakness behind the meat and dairy front put downward pressure on GDP in the second quarter this year.

"The economic survey of manufacturing provides some guide to the manufacturing component of GDP (although this correlation has waned considerably). This result suggests some upside risk to our forecasts, and combined with the better than expected Q1 construction activity we have revised up our Q1 GDP forecast. We now expect that GDP will only contract 0.5% over Q1. However, given the weakness in underlying manufacturing and the timing implications of building consents, we have revised down our Q2 GDP expectation and now expect a sizable contraction."