The lower Australian dollar is driving continued manufacturing growth, with new figures released showing the sector expanded for an eighth straight month in February to a near six-year high.
The Australian Industry Group said its Australian Performance of Manufacturing Index rose by 2 points to 53.5 – its highest level since July, 2010.
“The manufacturing sector had a running start to 2016 with another month of expansion recorded for February,” Ai Group chief executive Innes Willox said.
Production, sales, new orders and exports all lifted in February to consolidate the gains made by manufacturers over the second half of 2015.
“There is little doubt that greater competitiveness in export markets and in the domestic market due to the lower dollar is central to this turnaround,” Mr Willox said.
“With firmer expectations of the dollar remaining at or about its current level, confidence is building and businesses are readjusting their strategies, giving a higher priority to domestic activities both internally and along their supply chains.”
Mr Willox said that while the balance appeared to be swinging to the positive, important challenges and fragilities remained and the sector was vulnerable to international volatility and adverse domestic policy changes.
“Important sub-sectors, including the metal products sub-sector, remain in contraction as does the large machinery & equipment sub-sector despite improving trends in recent months,” he said.
“Many businesses are being adversely impacted by the higher costs of imported inputs associated with the lower dollar. Businesses are also finding that supply chains are taking time to rebuild after the ‘hollowing out’ that characterised the extended period of weakness for the sector in recent years.”
Mr Willox said the upcoming federal budget was an opportunity to add momentum to the manufacturing recovery.