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Australia’s manufacturing sector entered 2026 with improving momentum, but renewed global disruption is again testing resilience across the industry.
CommBank’s Manufacturing Signals Report highlights that manufacturing output expanded 1.2% over the year to December 2025, marking a return to growth after contraction in 2024. However, operating profits declined by 2.0% over the same period, reflecting the ongoing pressure rising costs are placing on margins.
Navigating a more complex operating environment
According to insights from CommBank’s Economics team, manufacturers are now navigating a more complex operating environment. CommBank Senior Economist, Business and Industry, Ryan Felsman, says, “The outlook for 2026 is already impacted by challenges relating to the Middle East conflict and global trade risks. Higher interest rates also play a role as the Reserve Bank of Australia (RBA) responds to persistent inflationary pressures.
“Manufacturers, already faced with rising input prices, are now reporting higher fuel, material and freight costs, as well as supply shortages and export challenges linked to supply disruptions around the Strait of Hormuz.”
“It’s no longer just fuel, clients are navigating cost pressures across their entire operation; it’s warehousing, labour, and raw materials,” says Belinda Harris, General Manager Commercial Banking Queensland at CommBank.
Harris says many businesses are also becoming more sophisticated in how they manage working capital and investment decisions. “It used to be a 12-week cash flow; now it’s six months, with sensitivities built in. Businesses are getting more sophisticated because that knowledge helps them understand what they can and can’t manage.”
These conditions are also influencing customer behaviour. As Felsman says, “some customers have brought orders forward to build inventories just as a ‘sovereign resilience’ pivot is putting more focus on localised inventory stockpiling and production”.
Meanwhile, longer shipping delays and inventory stockpiling are extending cash conversion cycles and increasing pressure on working capital management. CommBank is supporting manufacturers that are navigating this cashflow volatility, helping them access short to medium-term working capital.
Productivity and operational resilience remain in focus
Manufacturers are increasingly responding by focusing on productivity, operational efficiency and cost discipline, rather than volume-based expansion alone. Technology and automation are also becoming more central to resilience strategies, particularly as labour shortages remain acute across technical and trade occupations.
Around 80% of manufacturers are investing in or planning to adopt AI, with businesses exploring ways to improve efficiency, streamline operations, and manage labour constraints through automation and smarter processes.
For many manufacturers, the immediate opportunity is in using AI to improve reporting, forecasting, and operational visibility, rather than fully automated production. Delta Panels’ CFO, Rory Guy, says the business is exploring AI to improve management reporting, customer trend analysis, and production insights, helping their teams extract greater value from existing operational data.
Signs of resilience across the sector
While the outlook remains challenging, the report also highlights important signs of resilience within Australian manufacturing. “Despite these domestic and global headwinds, Australian manufacturing has shown resilience with its share of GDP stabilising at around 5.7% as of December 2025 after a long-term decline,” says Felsman.
“The industry is shifting toward higher value exports, including medical devices, advanced food products and specialised materials, alongside accelerating exports of battery inputs,” he added.
Supporting manufacturers through changing conditions
For CommBank, the report reflects a commitment to helping manufacturers interpret changing conditions with timely economic insights, specialist banking support, and practical solutions that enable businesses to invest, adapt, and grow amid a challenging market environment.
Read the full report
Explore the economic forces shaping Australian manufacturing in 2026. Read the CommBank Manufacturing Signals Report now.
Sources: Australian Industry Group (March 2026) Australian Industry Index; S&P Global (March 2026) Australia Manufacturing PMI; Jobs & Skills Australia, Occupation and Industry Profiles, 2026; Northline, Impact of the Middle East Crisis on Ocean Freight to Australia, 5 March 2026; ITBrief, Manufacturers embrace AI & automation but face key barriers in 2025, 29 May 2025; Australian Bureau of Statistics National Accounts, June 2025; Australian Bureau of Statistics Labour Force, February 2026.
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