The manufacturing sector ended 2010 with a softening in December with no strong signs of a pick up in the New Year, according to the latest seasonally adjusted survey.
The Australian Industry Group – PwC Australian Performance of Manufacturing Index (Australian PMI) fell 1.3 points to 46.3 to remain below the 50 point level separating expansion from contraction.
Manufacturers cited weakening domestic demand together with the strong Australian dollar and higher interest rates as negatively impacting on growth in the month.
Nine out of the twelve sub-sectors recorded declines in activity, including clothing and footwear, textiles and wood products and furniture.
Australian Industry Group Chief Executive, Heather Ridout, said: "The Australian PMI in December points to the manufacturing sector losing ground and showing few signs of upturn as it finished the year on an ordinary note. The continuation of flat conditions in the sector reflects accumulating structural pressures mounting on the industry along with other trade-exposed sectors in the wake of the mining boom.
"These pressures look set to continue due to the strength of commodity prices and the levels of investment we are seeing in the mining sector. These forces are pushing up the level of the dollar and expectations about the directions of interest rates and inflation. These structural pressures need to be at the centre of policy attention as we, as a nation, grapple with the risks of becoming an unbalanced and insufficiently diversified economy into the future," Ms Ridout said.
PwC Global Head of Industrial Manufacturing, Graeme Billings, said: "While the manufacturing sector started 2010 with conditions improving strongly, since around March the sector saw first a slowing pace of growth and, over the closing four months of the year, falls in levels of activity.
"In the face of these declines in activity and the continuing slump in new orders, it is imperative that businesses continue to search for efficiencies, improvements and innovative approaches to their markets, products and business models," Mr Billings said.