The Australian manufacturing sector suffered a dip during September, with the strong dollar, increased costs and weakening demand blamed for the drop.
The manufacturing index compiled by the Australian Industry Group and PricewaterhouseCoopers fell by 4.4 points to 47.3 last month. This is the first rime the index has dropped below the 50-point mark, which suggests the industry is contracting.
The food and beverage, clothing and footwear and fabricated metals sectors all suffered from the sharpest declines, while the transport equipment market enjoyed the strongest growth.
The index for new orders fell to 46.5 after eight months of growth, while production levels fell by 5.3 points to 46.2.
The Australian Industry Group blamed the recent surge in the Australian dollar for the dip. Costly raw materials and slipping demand were also identified as causes.
Heather Ridout, CEO of the AIG, says: “The contraction in manufacturing activity in September comes after a six-month period of falling growth rates and a steady build-up of inventories. The strength of the Australian dollar in particular, led by the large rises in minerals prices, is challenging the competitive position of the sector in both the domestic and export markets.”
“Manufacturers are facing growing pressures on two other fronts – private sector demand is still not growing sufficiently to offset the unwinding of fiscal stimulus measures while wage pressures have built up steadily and are now at a level not seen for several years.”
“This combination of factors underlines the vulnerability of manufacturers to interest rate rises and points to the importance of productivity-boosting policy measures including in the areas of innovation, education and training, taxation and workplace relations.”