The manufacturing sector’s resilience will enable it to bounce back despite the bushfire crisis and ongoing drought contributing to the sector’s contraction and the lowest Performance of Manufacturing Index (PMI) results since 2015, according to Ai Group. However, things are unlikely to improve as the coronavirus outbreak threatens to dent demand for Australian exports.
“Many manufacturers were closed during the harshest periods of the bushfires in early January, but those that were open reported a drop in sales, with many attributing this to adverse local weather and the bushfire crisis,” Ai Group’s chief executive, Innes Willox, said.
The PMI, compiled by Ai Group, dropped 2.9 points to 45.4 in January, a third consecutive month of contraction that marked the lowest monthly result since 2015.
“The combined impact of global trade disruptions, slow local consumption, the residential construction downturn, drought and the ongoing bushfire crisis are taking their toll on local production this summer. Drought and fire continue to disrupt activity, reduce demand and push up prices for key inputs for food processors and other manufacturing sectors,” Willox said.
“Activity, new orders, deliveries, sales and exports all slowed in the last months of 2019 and this has continued into January, affecting all segments of manufacturing.”
While January is traditionally the slowest month for Australian manufacturing, the start to 2020 was even slower than usual.
Of seven manufacturing sectors, only food & beverage manufacturing did not contract in the last month and in fact expanded.
However, already in January the sector is facing another threat to manufacturers in the form of the coronavirus emerging from China.
“China and its Asian neighbours are key export markets for Australian food, beverages and other manufactured goods. The measures announced in response to the virus to date are timely and necessary, but they will likely dent demand for Australian manufactured exports in the short term,” Willox said.
“The resilience and flexibility of Australian manufacturers provides some comfort that they will be able to bounce back quickly, once trading conditions return to a more normal pattern of activity.”
The Advanced Manufacturing Growth Centre’s managing director, Jens Goennemann, is positive the sector will rebound.
“While today’s PMI numbers reflect the pressures on Australian manufacturers, they do not capture the hard work and innovative solutions being conceived across the country today,” Goennemann said.
“Australia’s manufacturing industry is vibrant and healthy, and we must persist with investment into the sector to ensure Australian manufacturers can continue to advance. In January alone, AMGC bore witness to several local manufacturing projects become a reality, placing Australian manufacturing and products firmly in the sights of export markets.
“Now is the time to continue and bolster support for Australian manufacturers. Innovation rises in the face of adversity, and Australian manufacturers have strong resilience – the opportunity is ours to seize.”