A weekend survey showed China’s manufacturing sector has started contracting again for the first time since last November as the country struggles to find orders to fill.
Despite this, the decline of the manufacturing sector at home appears to have halted with the local index rebounding in August. According to the latest Australian Industry Group – PwC Australian Performance of Manufacturing Index, orders rose 5 points to 45.3 last month.
While a reading below 50 still indicates a contraction in activity, the strength of the contraction has receded. A further positive result was news that three sub-sectors actually expanded in August.
Miscellaneous manufactures (62.3), food & beverages (55.4) and wood products & furniture (54.1) are all expanding their manufacturing production. In July just one sub-sector was recorded as expanding.
For the remaining 8 sub-sectors still contracting, Australian Industry Group chief Innes Willox says the strong Australian dollar and weak markets are to blame, not helped by the rising cost of utilities.
“Manufacturing conditions continue to be very challenging across the sector with the high dollar and weakness in demand in the domestic and export markets weighing on growth.
“There are some encouraging signs in the August Australian PMI with the production sub-index lifting and the forward-looking new orders sub-index rising strongly.”
PwC partner Jeremy Thorpe echoes Willox’s sentiments, saying it is not Australia specific but a global challenge.
"Manufacturing remains in a contractionary state in Australia, as it does in China, the Eurozone, the US and Japan. This poor outlook for Australian manufacturing is driven by the economic fundamentals noted in the federal government's Manufacturing Taskforce report.
“Unfortunately, these are universal challenges without simple solutions,” Thorpe says.
The report Thorpe refers to has been applauded by small business groups as it specifically mentions the contribution of these businesses to the manufacturing sector and outlines industry-specific stimulus programs and a range of updates just for smaller companies.
The report, released in August, had 4 key recommendations relating to SMEs.
1. An upgrade of Enterprise Connect to provide more autonomy.
2. Establishing Innovation Vouchers to support researchers providing direct assistance to SMEs.
3. Creating a Small Business Innovation style procurement initiative, and encourage state governments set up similar programs.
4. Assistance to help SMEs access finance.
It’s hoped that these touted measures come into action soon and help that PMI index tip over 50 in the not too distant future.
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