Australia's manufacturing contraction just got worse

(Getty/Mark Kolbe)

Australian manufacturing, or what’s left of it after the high dollar hollowed out a large chunk of local industry, has weakened further.

That’s according to the Australian Industry Group’s (AiGroup) Performance of Manufacturing Index for February. The PMI fell 3.6 points, more than 7%, to 45.4 during the month. That’s the third month of contraction in a row.

Of all the subsets in the index – production, new orders, sales, stocks, and exports – only exports is in an expansion phase. No doubt the Aussie dollar is playing a role in this.

The overall level of manufacturing contraction is another example of the tough conditions Australian business is facing.

Ai Group CEO Innes Willox said: “While there are bright patches, most notably for food & beverages and producers of building materials, weak domestic demand from businesses and households is offsetting the boost that many domestic manufacturers might have expected to flow from the weaker Australian dollar.

He added that weak domestic demand underlines why the RBA has cut rates once this year but equally he said it “underlines the importance of using the May Budget to provide a boost to domestic activity – including by delivering on the commitment to cut the company tax rate to 28.5 percent for all companies.”

It’s absolutely true the RBA has done what it can and while another cut tomorrow is possible it is now up to the government to provide support for the economy and business.

An end to political wrangling would be a great start.

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