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High Aussie dollar hurts manufacturing sector for second month

The high Aussie dollar and sluggish domestic demand have been blamed for further contraction in the manufacturing sector in October according to the latest Australian Industry Group – PwC Performance of Manufacturing Index.

Aussie DollarThe October Australian Industry Group – PwC Australian Performance of Manufacturing Index (Australian PMI) seasonally adjusted index rose 2.1 points to 49.4, remaining just below the critical 50 point level separating expansion from contraction. This is the second consecutive month of contraction, after the Australian PMI rebounded strongly in July 2009, only dipping below the 50 point mark in December last year before remaining in positive territory until September.

Clothing & footwear and machinery & equipment sub-sectors rebounded sharply, but was offset by falls in the textiles sub-sector, which was largely related to weak consumer confidence and a shortage of skilled labour. Food & beverages and wood products & furniture also remained in the red. Across manufacturing, production levels and employment rose in October.

Australian Industry Group Chief Executive, Heather Ridout, said manufacturers continue to struggle due to overseas competition as a result of the strengthening Aussie dollar, in addition to lackluster domestic demand.

“While not confined to the west, skill shortages are particularly acute among Western Australian manufacturers. The industry also remains wary of the impact of interest rate rises at a time when strong competitive pressures are ensuring that inflationary pressures remain moderate,” Mrs Ridout said.

PwC Global Head of Industrial Manufacturing, Graeme Billings, echoed Heather Ridout’s sentiment.

“The manufacturing sector continues to be weighed down by intense overseas competition, and this will be exacerbated by the strong Australian dollar. These circumstances present substantial challenges for manufacturers who must continue to search for business efficiencies and innovation opportunities.

“There are, however, reasons to be cautiously optimistic about the near term prospects of the sector. Production in the clothing & footwear; construction materials; and machinery & equipment sub-sectors rose strongly in October despite the overall fall in new orders, suggesting that businesses expect a pick-up in demand over the coming months,” Mr Billings said.

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David Olsen

David Olsen

An undercover economist and a not so undercover geek. Politics, business and psychology nerd and anti-bandwagon jumper. Can be found on Twitter: <a href="http://www.twitter.com/DDsD">David Olsen - DDsD</a>

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