Australia’s manufacturing sector returned to expansion in April, but underlying conditions remained weak as inflationary pressures and supply disruptions intensified, according to S&P Global.
The headline seasonally adjusted S&P Global Australia Manufacturing Purchasing Managers’ Index (PMI) rose to 51.3 in April from 49.8 in March, moving back above the 50.0 no-change threshold.
However, S&P Global indicated that the increase was largely driven by longer supplier delivery times and higher input inventories, rather than improvements in demand or output.
According to the report, the extension in delivery times – linked to disruptions in international freight – was the most significant since July 2022 and played a major role in lifting the headline PMI figure. At the same time, key components such as new orders, output and employment remained in contraction territory.
S&P Global attributed the disruption to the ongoing war in the Middle East, which affected fuel availability and logistics. Manufacturers reported difficulties sourcing fuel, contributing to delays in supply chains and rising operational costs.
Inflationary pressures strengthened markedly during the month. The rate of input cost inflation accelerated to its fastest pace in over four years, with nearly 69% of surveyed firms reporting higher costs. Output price inflation also increased sharply, ranking among the fastest recorded in the survey’s history.
“After March PMI data had highlighted the initial impacts of the war in the Middle East on the Australian manufacturing sector, the April figures highlight an intensification in those effects,” said Andrew Harker, Economics Director at S&P Global Market Intelligence.
“The price and availability of fuel is of particular concern, with disruption to supplies feeding through to much more pronounced input cost increases and supply-chain delays compared to March,” he said.
Production declined for the third consecutive month in April, with the rate of contraction the fastest in 16 months, albeit still modest. New orders also fell further, reflecting weaker domestic demand and a renewed drop in export business, which decreased for the first time in four months.
Despite reduced workloads, manufacturers increased purchasing activity and raised their stocks of inputs for the first time in seven months. S&P Global noted that firms were building safety stocks in anticipation of further cost increases and continued supply-chain instability.
“Sharply rising prices and supply disruption also impacted new orders and production, while a number of firms made efforts to build safety stocks by securing materials whenever possible ahead of further cost rises,” Harker said.
Employment declined for a second consecutive month, with firms citing the non-replacement of departing staff and reduced working hours amid lower demand. Backlogs of work and stocks of finished goods also continued to decrease.
Business confidence weakened further in April, falling for the third straight month to its lowest level since July 2024. Manufacturers cited concerns around inflation, cost-of-living pressures and the ongoing conflict.
“Firms will be hoping for a swift end to the conflict to alleviate current pressures, but while the war continues operating conditions are likely to become more and more challenging,” Harker said.
Despite current challenges, S&P Global reported that some manufacturers remain cautiously optimistic about the year-ahead outlook, with expectations that demand and broader business conditions may improve once geopolitical pressures ease.
