Australia's manufacturing sector is worse than Europe's

Getty/Ian Waldie

When is Australian manufacturing going to start growing again.

That’s a reasonable question to ask after the AiGroup’s PMI this morning printed its fourth straight month below 50. At 46.3 the AiGroup PMI rose 0.9 points in March but to put this in context we need to compare that performance with the recent and expected performance of European PMI’s which will be released tonight. Economic Calendar – Screenshot

Australia’s performance is well below all of Europe and even below the Greek manufacturing sector. In the US the Markit manufacturing PMI is expected to print 55.1 tonight.

At least the Aussie dollar is starting to help with exports as activity indicators showed expansion.

AiGroup reported that:

Among the activity indicators, manufacturing production (up 1.6 points to 46.6) and new orders (up 1.7 points to 45.9) continued to decline, and manufacturing sales (up 1.0 point to 46.2) contracted for a tenth consecutive month. Only the manufacturing exports sub-index signaled expansion (down 2.2 points to 51.7 points), as the impacts of the lower dollar continued to flow through.

AiGroup CEO Innes Willox highlighted that even with the positives of a lower Aussie dollar and the big boost in construction the sector is still struggling. Willox noted:

Despite stronger residential building activity and some easing of the intense pricing pressures from imports flowing from the lower dollar, weak local demand continues to weigh heavily on activity. This month manufacturers noted the dampening impacts of further drops in mining construction; the progressive closure of automotive assembly; subdued business investment in equipment; and political uncertainties in Canberra and in NSW ahead of the state election.

That’s a far from positive outlook.

Manufacturing is not the economic influence it once was in the Australian economy. But the RBA must be tearing its hair out as to what it can do to kick start this sector. Indeed perhaps as it has been alluding to recently it recognises that taking rates much lower – perhaps 2% – would start to hurt overall economic activity given its impact on self funded Australians.

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