**Australia**: The Australian manufacturing and industrial sectors continue to struggle, with a 33rd month of contraction reported by Ai Group. Factors include US trade policies, election uncertainties, and declining customer confidence amidst global economic challenges, impacting production and employment levels significantly.
The Australian manufacturing and industrial sectors are facing continued challenges, as indicated by the latest report from the Australian Industry Group (Ai Group). The seasonally-adjusted Australian industry index saw a decline of 3.1 points to minus 22.2 in March, marking the 33rd consecutive month of contraction.
Several factors are contributing to this downturn, with uncertainty stemming particularly from the repercussions of US trade policies, foreign exchange volatility, and the upcoming Australian federal election exerting adverse effects on industrial markets and activity. There is also a noted decline in customer confidence, which is being further strained by global economic uncertainties, including potential changes to US tariffs.
In March, demand remained weak across both the manufacturing and construction sectors. While there was a slight improvement in the construction indicator since late 2024, the manufacturing sector continues to show signs of entrenched contraction. The activity and sales indicator experienced a significant decline of 7.7 points, landing at minus 31.5 for March, suggesting a continuing reduction in industrial activity during the first quarter of this year, as per Ai Group’s release.
The contraction in new orders has also worsened, with this indicator dropping by 3.7 points to minus 25. Despite some recovery noted in the latter half of 2024, new orders have stabilized at a substantially low level throughout the first quarter of 2025. Furthermore, input volumes also fell, down 8.6 points to minus 11.4, marking a continued trend of contraction since late 2023.
Employment in the industrial sector has shown some signs of improvement, with a rise of 5.8 points to minus 7.3 points in March, reflecting a positive shift in trend terms following a low point recorded in the fourth quarter of 2024. However, the decline in employment continues to be linked to election-related uncertainties and natural disasters, including bushfires and cyclones, which have caused interruptions in business operations.
The pricing environment exhibited mixed indicators during March, with the sales price indicator remaining close to neutral as businesses struggled to pass on rising costs. Wage and input price indicators have been declining steadily over the past year, yet remain significantly higher than sales prices, implying ongoing pressure on industrial margins.
The manufacturing purchasing managers’ index (PMI) indicates a continued contraction, falling by 17.8 points to minus 29.7 as some manufacturers reported a loss of customers linked to the slowing economy. This has been compounded by challenges such as the impact of US tariffs and a weaker Australian dollar, which have affected the supply of raw materials essential for production.
Capacity utilisation in the Australian industry also saw a slight decline to 79 per cent in March, below the post-pandemic average of 80.4 per cent, with constraints attributable to labour shortages, equipment limitations, and disruptions in raw material supply lines.
Overall, the report outlines a challenging landscape for Australia’s industrial sectors, framed by a combination of domestic political uncertainty and global market pressures which are influencing demand, production capabilities, and overall economic health.
Source: Noah Wire Services
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