Strong Aussie dollar continues to pressure manufacturing sector in March


The Australian manufacturing sector continues to take a beating from the high Australian dollar as the industry records a contraction in activity for the fifth straight month in March, according to the latest Performance of Manufacturing Index from the Australian Industry Group.

Image credit: Free Digital Photos user Vichaya Kiatying-Angsulee
Image credit: Free Digital Photos user Vichaya Kiatying-Angsulee

The AI Group’s monthly PMI fell 0.7 points to 47.9 in March. A reading below the 50 level indicates a contraction in activity.

In a media release AI Group Chief Executive Innes Willox says the latest Australian PMI shows that large parts of the economy are failing to gain traction this year.

“Subdued local demand and the newly resurgent dollar are weighing heavily against the efforts of manufacturers to rebuild their sales base in Australia and internationally. High local production costs and rising input prices are still major barriers for those who are trying to compete internationally and against imports in the domestic market,” said Mr Willox.

He said that while the Reserve Bank has issued a more positive outlook for the economy with a hold on interest rates for 2014, the outlook from the business perspective is much more fragile.

“The much-anticipated housing recovery remains weak in most states, consumer spending on non-food goods and local services is muted, and business attitudes to investment and hiring remain cautious. In this fragile atmosphere, we need to ensure that all relevant policy settings are supportive and not hindering the rebalancing our economy requires,” Mr Willox added.

The report showed that manufacturing production levels contracted, falling by 2.3 points to 49.2. Employment across the sector was weak with the sub-index down 2.4 points to 45.0.

Meanwhile four sub-sectors continued to expand: food and beverages (53.4); petroleum, coal chemicals and rubber products (62.2); non-metallic minerals (66.9); and wood and wood paper products (55.6).