Australia's PMI Rose 2.1 Points To 49.0 In January

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Here’s some evidence that the falling value of the Australian dollar is starting to work in favour of some businesses.

The Australian Industry Group’s Performance of Manufacturing Index rose 2.1 points in January to 49.0, still below the 50 level separating expansion from contraction but showing conditions in the ailing manufacturing sector stabilising somewhat despite the pain inflicted by the drop in mining investment and the shuttering of Australia’s auto industry.

Here’s the chart:

The continued sharp fall in the Australian dollar is a double-edged sword for manufacturers: exports become more competitive but the costs of investment when you need to buy materials from overseas increases.

Australia’s food and beverage sector – the single largest – turned in another increase, rising 2.5 points to 62.9 points on a three-month moving average basis. Sales of Australian-made food and drink are robust and activity in the sector is growing strongly:

Australian Industry Group chief executive Innes Willox said:

While manufacturers opened the new year with reductions in sales, production and new orders, the healthy lift in exports is a welcome sign that the fall in the value of the Australian dollar will be a fillip to the sector over coming months. In the meantime, however, the depreciation has also been something of a mixed blessing as it has increased prices for imported inputs including capital equipment. This adverse impact of the lower dollar, together with the loss of sales from the sharp drop in mining investment, the wind down of auto assembly in Australia and generally weak business investment indicate that the headwinds facing the sector will continue well into 2015.

The AIG says the recent results from the PMI suggest manufacturing output is likely to be broadly flat in Q4 2014, and has been flat so far in 2015.

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