Manufacturing activity continues to weaken: survey

The July Australian Industry Index — a monthly survey of business activity in industrial sectors — has revealed that activity indicators for the construction and business services sectors have been improving towards neutral this year; however, manufacturing activity continues to weaken.

“Manufacturing has been left behind from the recovery in Australia’s industrial sectors since the start of this year,” said Innes Willox, Chief Executive of national employer association Australian Industry Group.

Manufacturers continue to report very poor business conditions, citing trade disruptions on the demand side and energy costs on the supply side as key factors. This means the industry has been left behind from the consistent improvement across the rest of the industrial ecosystem.

Key findings include:

• The machinery and equipment indicator improved by 22.9 points to -14, the highest result since May 2024.
• Machinery manufacturers indicated that global volatility and a lack of capital expenditure from major clients dampened sales, while cost pressures increased — driven by higher energy prices and rising wages.
• Food, beverages and TCF fell by -10.4 points to -34.5, the lowest result since November 2023.
• Food and beverage reported that tariff uncertainty reduced overseas demand, higher input costs and lower local consumer demand due to higher living costs.

“Manufacturing is one of Australia’s most trade-exposed industries, and is beginning to feel the effects of trade disruptions. US tariffs both hit our advanced manufacturing exporters, and subjected those which import-compete to higher pressures from trade diversion,” Willox said.

“Industrial gas prices — which have risen 48% since 2019 — have also hit manufacturers hard. Our competitive advantage from lower energy costs has been steadily eroded, leading to several plant closures over recent years.

“We should be worried. Manufacturing directly employs 930,000 people, generating over 12% of our exports and 8% of capex despite being only 5% of GDP. It is also an engine of innovation, reinvesting 4.1% of value-added back into R&D — the highest rate of any industry in Australia.

“Treasurer Jim Chalmers’ Roundtable this month can begin a clear reform path around the issues of energy, resilience and productivity. Given its centrality to our economic success, the issues impacting manufacturing in turn impact the entire economy.”

Image credit: iStock.com/Chatchai Limjareon