New Zealand's manufacturing sector continued to expand in July but at a slower pace amid weakened sentiment due to the impacts of the Middle East conflict.

According to the BusinessNZ Performance of Manufacturing Index (PMI), the seasonally adjusted PMI for July came at 54.3, above the 50 mark that indicates expansion, but down from 60.1 in June, while managing to stay above the survey's long-term average of 52.5.

"What's more concerning is the shift in sentiment, with 57% of comments being negative. Respondents continue to point to the conflict in the Middle East, high fuel and raw material costs, and a general reluctance from customers to spend, with a number also citing uncertainty ahead of the election," said BusinessNZ's Director of Advocacy, Catherine Beard.

Steady order books and stronger export sales were reasons for optimism, while cost pressures from fuel, freight, and raw materials, alongside the ongoing Middle East conflict, were the main headwinds.

All subindexes showed expansion, albeit slower than June's remarkable levels, with production the strongest at 57.3, followed by deliveries at 55.8.

New Orders were down to 53.3, finished stocks eased to 53.2, and employment was the weakest at 52.8.

"We acknowledge 54.3 is softer than June's staggering result; however, some month-on-month volatility in the PMI is common and not an immediate cause for concern," said BNZ Senior Economist, Doug Steel.

The data adds to several forward-looking indicators suggesting economic momentum is building, with positive growth expected beyond the second quarter despite slight negative gross domestic product growth expected for the period, the PMI report said.

According to the JP Morgan Global Manufacturing PMI, New Zealand remains among the top manufacturers after Japan, which reached 54.5, while the US followed with 53.9.