Manufacturing subdued, but still growing

Australia’s manufacturers are feeling the pinch from the higher Australian dollar and higher interest, but the industry continues to grow – just.

The Australian Industry Group’s Performance of Manufacturing index fell by 1.5 points in May to 51.2, following a 0.4 point rise in April. The index remained above the key 50 point level separating expansion from contraction.

AIG chief executive Heather Ridout says manufacturers face a number of headwinds, including slower domestic demand (due to higher interest rates), a strengthening dollar and rising input costs such as steel and oil. Ridout has renewed calls for the RBA to give the sector a break and keep interest rates on hold.

“Industry is going to have to work even harder on lifting competitiveness in order to maintain profitability and market share, while at the same time monetary policy needs to have an eye on the extraordinary pressures which this large and very important sector of the economy continues to experience,” Ridout said.

Activity expanded in six sectors in May, compared to eight in April. Growth was strongest in the wood, wood products and furniture sector and the transport equipment sectors, while the food and beverages; construction materials; basic metal products; and fabricated metal products sectors all posted moderate growth.

The weakest sector was paper, printing and publishing, which has now experienced nine straight months of negative growth. Activity also fell in the clothing and footwear; chemicals, petroleum and coal products, and machinery and equipment sectors.

Read more on manufacturing