Industry growing, but strong dollar hurting exporters

GROWTH in manufacturing activity strengthened moderately in the June quarter, according to the latest Australian Industry Group - PricewaterhouseCoopers Survey of Australian Manufacturing

GROWTH in manufacturing activity strengthened moderately in the June quarter, according to the latest Australian Industry Group — PricewaterhouseCoopers Survey of Australian Manufacturing.

Largely reflecting a broadening in demand, the net balance of firms reporting higher production in the quarter rose to +12%, from +6% in the March quarter 2007.

The report reveals sales increased solidly, with production expanding in all 12 sectors, up from eight in the previous quarter as sales and new orders increased at the fastest rate in two years.

While there were some further gains in exports, these were largely due to rises in metal prices and, overall, look like being short lived.

The further appreciation of the Australian dollar has blunted short-term prospects for exporters, with the 3-month forecast for exports the second lowest in the survey’s history.

Ai Group’s CEO Heather Ridout said while growth in manufacturing in the quarter remained moderate overall, the strength of domestic demand suggests that the economy is continuing to grow at a solid rate.

“Manufacturing exporters, however, are bracing themselves for a much tougher second half. The recent rise in the exchange rate has already emerged as a significant headwind, with over one in 10 manufacturing exporters citing it as the major constraint on production in the quarter.

“This outcome reinforces the findings of our recently released report, The Australian dollar and manufacturing exports, (see page 6) which found that Australian manufacturers have clearly identified the high exchange rate as a critical factor influencing export growth,” Ridout said.

Looking forward, sales, new orders and production are forecast to grow at a broadly similar rate in the next three months.

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