The outlook for Australia's manufacturing sector is looking brighter

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The outlook for Australia’s manufacturing sector is looking brighter with the latest ACCI-Westpac survey of industrial trends composite index rising 2.2 points to 58.4 in the June quarter.

The increase, the third consecutive quarterly gain, leaves the index substantially above its historic average of 49.

According to Westpac, the “result builds on the positive tone in the previous two quarters, suggesting that the improvement which emerged in late 2013 has resumed”.

“That is after a mid-year lull in 2014 associated with a tough Federal budget. Manufacturing is benefitting from rising home building activity and some improvement in service sector investment, boosted by lower interest rates. The small business package in the Federal budget is also a plus.”

The improved quarterly reading was primarily driven by improved sentiment towards new orders, output, profits and overtime worked.

In what is a promising sign for economic rebalancing in the second half of the year, the survey revealed that the downturn in business investment may be nearing its low point. Over the past three quarters the number of firms indicating they’ll spend more on plant and equipment has outnumbered those looking to reduce spending, indicating a possible turning point in the investment cycle.

While manufacturing will not be able to offset the huge decline in mining sector expenditure in the years ahead, the improvement seen in expected plant and equipment spending could be an indicator that the broader, and significantly larger, services sector may also be about to lift expenditure.

The RBA and government, facing sub-trend economic growth, will be hoping that is the case.

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