The Australian Industry Group (Ai Group) says weakness in the manufacturing sector is likely to continue due to ongoing decline in new orders.
The Ai Group/PricewaterhouseCoopers Australian Performance of Manufacturing Index (Australian PMI) was relatively stable in September, up by 0.2 points to 47.2, remaining below the key 50.0 level separating expansion from contraction.
Ai Group chief executive Heather Ridout said the PMI was stagnant in September, reflecting the softening of consumer demand in Australia and the weakness of the world economy.
She said this was particularly so in the United States, Europe, and in Japan, Australia’s largest export market. Signs of weaker growth in China were compounding the deterioration.
“The ongoing decline in new orders reported in the Australian PMI suggests that the weakness in manufacturing is likely to persist, particularly with employment growth showing signs of losing momentum,” Ridout said.
“In these conditions a further reduction in official interest rates would be a welcome move by the Reserve Bank.”
PricewaterhouseCoopers global leader of industrial manufacturing Graeme Billings said manufacturing remained trapped between “the pincers of declining new orders and rising costs”.
Given the continuing uncertainties in the world economic outlook and its likely flow-on through to manufacturers’ international and domestic markets, these pressures on profitability were unlikely to ease over the next few quarters, notwithstanding some easing in the costs of fuel, Billings said.
“In the absence of any short-term improvement in the economic outlook, businesses need to continue with stringent cost management and to maintain a focus on building long-term profitability through broadening of market and product scope, deepening global supply chains and strengthening their skills bases,” he said.
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