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Construction Activity Keeping Australian Manufacturing Healthy


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A rise in non-residential construction, increased home building activity, and governments upping spending on infrastructure projects are having flow-on benefits for the domestic manufacturing sector, according to the latest quarterly Westpac-Australian Chamber of Commerce and Industry industrial trends survey.

Other positive influences on the sector are stronger world growth and a relatively low Australian dollar driving increased exports, the report shows. 

Other positive influences on the sector are stronger world growth and a relatively low Australian dollar driving increased exports, the report shows.

"However, there are some negatives - consumer spending is lacklustre, constrained by slow wage growth, while offshore competition in the manufacturing sector continues to be intense," Westpac senior economist Andrew Hanlan says.

The sector has been steadily expanding since 2014, the report says, with manufacturing output expanding for the past 13 quarters. The survey finds 41 percent of Australian manufacturers increased their output in September, up from 38 percent in June.

During late 2015, there was some volatility, due to a brief cooling in the housing sector with tighter lending standards coming into force. However, the report says that public infrastructure spending and commercial construction developments have recently been pushing the sector forward again.

“The story for Australian manufacturers is positive, but it’s not plain sailing yet,” James Pearson, CEO of the Australian Chamber of Commerce and Industry, says.

“On the one hand, Australian manufacturers are experiencing fierce offshore competition and rising cost pressures. On the other, exports, profit expectations, and employment are up, and so are expectations around wage growth.

“The survey shows conditions in the industrial sector and the broader economy are - and are expected to remain - buoyant.” 

“The survey shows conditions in the industrial sector and the broader economy are - and are expected to remain - buoyant,” he says. “We know conditions are patchy, though.

“Strong public infrastructure investment, a pick-up in global conditions, and non-residential construction are supporting the economy and offsetting challenging conditions in other sectors, such as retail.”

Mr Pearson says that it is “worrying” to see that even though manufacturers are investing in plant and equipment, big investment decisions, such as intentions to build more facilities, are dropping off.

“As with all investment decisions, confidence and certainty matter, and while manufacturers’ expectations remain positive, longer term certainty over energy prices and supply and company tax rates would certainly help,” he says.

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