Rising Aussie dollars hits manufacturing sector

05-04-2011

Australian manufacturing weakened last month as a direct result of higher raw material costs and a stronger Australian dollar, according to an industry survey.

The Australian Industry Group/PriceWaterhouseCoopers Australian Performance of Manufacturing Index (PMI) fell 3.2 points in March to 47.9. Readings below 50 indicate contraction in activity.

The decline in manufacturing activity was largest in the clothing and footwear, food and beverages, textiles and fabricated metal sub-sectors, the survey said.

After a lift in February, new orders were down in March, falling 3.2 points to 49.1.

Australian Industry group chief executive Heather Ridout says the high Australian dollar, has reached almost US $1.04 would continue to pressure the sector.

“And this is predicted to remain high for a protracted period of time,” she said.

The fall in the new orders sub-index also suggested the weakness in manufacturing would continue.

"The result portends the challenging conditions ahead for the manufacturing sector. However, the resilience of the sector should not be underestimated," Ms Ridout said.

"Governments and the Reserve Bank need to be very mindful of these soft conditions in manufacturing when setting policies and interest rates.

''The upcoming federal budget will be an important opportunity to encourage skills development, innovation and capital investment in the sector.''

PwC global head of industrial manufacturing Graeme Billings said the tough conditions should motivate companies to improve their businesses.

"Leading manufacturers are active in a range of areas including product and process innovation, energy efficiency and workforce development," Mr Billings said.

"Even small improvements make a critical difference."

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