Australian manufacturing activity contracted in May for the third consecutive month, as a result of ongoing weak domestic demand, cheap imports and the strong Australian dollar, according to the latest industry survey.
The latest Australian Industry Group – PwC Australian Performance of Manufacturing Index (Australian PMI) was broadly unchanged in May falling just 0.7 points to 47.7 (readings below 50 indicate a contraction in activity).
Only three of the 12 sub-sectors experienced growth, according to the survey.
The clothing and footwear and chemical, petroleum and coal products sub-sectors experienced the biggest decline.
The only states to record an expansion in manufacturing activity were WA and Tasmania.
Australian Industry Group chief executive Heather Ridout says the manufacturing sector is under increasing pressure because of the strong Australian dollar.
The local currency was trading above $US1.05 for most of May, hitting a post-float record high of $US110.11 early in the month.
“Key input costs such as energy are rising and manufacturers face ever-shrinking margins,” Ms Ridout said. “This continued flat performance highlights the potential risks the sector faces from any poorly designed climate policy measures."
PwC global head of industrial manufacturing Graeme Billings says manufacturing's continued weakness exemplifies the difficult economic conditions.
"Australia is one of only a handful of countries that are experiencing a surge in their currencies and underlines the need for local manufacturers to innovate, reassess their costs, develop new products and processes and continue the search for talent," says Mr Billings.
“While manufacturing businesses around the globe are facing similar competitive challenges from China and other emerging economies, Australia is one of only a handful of countries that are also experiencing a surge in their currencies and underlines the need for local manufacturers to innovate, reassess their costs, develop new products and processes and continue the search for talent."