Australia’s manufacturing sector contracted for the first time this year, as new orders declined both domestically and overseas, according to the latest S&P Global Australia Manufacturing Purchasing Managers’ Index (PMI).
The headline seasonally adjusted PMI fell to 49.7 in October from 51.4 in September, slipping below the 50.0 threshold that separates growth from contraction.
According to S&P Global, the latest figure signalled a marginal deterioration in operating conditions across the manufacturing sector – the first since December 2024.
S&P Global said the downturn was primarily driven by weakening demand. “October’s Australia Manufacturing PMI indicated that conditions in the goods producing sector deteriorated for the first time so far in 2025,” said Jingyi Pan, Economics Associate Director at S&P Global Market Intelligence.
“Demand for Australian manufactured goods worsened both domestically and abroad, dampened by subdued market conditions and destocking among clients.”
The survey found that new orders fell at the fastest pace in ten months, reflecting soft market conditions and sufficient stock levels among clients.
New export orders also declined, particularly from other Asia-Pacific markets. As a result, production contracted for the first time since June, while staffing levels and purchasing activity both fell.
“Compared to the relatively shallow and brief reduction in manufacturing output mid-year, the latest downturn in production was accompanied by the first fall in headcounts in eight months,” Pan said.
“Altogether this suggests that goods producers have become more cautious regarding the outlook for growth.”
Manufacturers also reported lower purchasing activity, leading to the first decline in input inventories in three months. In contrast, stocks of finished goods rose amid a lack of new orders and delays in outbound shipments.
S&P Global noted that delivery times lengthened at the sharpest pace so far in 2025, attributed to port congestion and challenging weather conditions.
On the price front, input cost inflation accelerated to the highest level since April, driven by rising prices for raw materials, electricity, and shipping. However, manufacturers were limited in their ability to pass on these costs.
“Manufacturers notably faced heightened margin pressures in October,” Pan said. “Output price inflation eased despite an intensification of cost inflation, reflecting the impact of intense competition going into the fourth quarter.”
Despite the weaker data, S&P Global noted that manufacturers remained optimistic about future output. The Future Output Index stayed above the 50.0 neutral mark, though confidence dipped to a four-month low as firms expressed growing concerns about the broader economic outlook.
S&P Global concluded that the combination of falling demand, easing output prices, and rising costs pointed to a cautious environment for Australian manufacturing heading into the end of 2025.
