Australian PMI: Manufacturing downturn adds weight to calls for fiscal stimulus

The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI) increased slightly by 0.2 points to 48.3 in December, marking two consecutive months of contraction in the Australian PMI for the first time since mid-2015 (readings below 50 points indicate contraction in activity, with the distance from 50 indicating the strength of the contraction).

With new orders again in negative territory in December and trending down since March, the current weak conditions for manufacturers are likely to continue into the New Year, with the strong food & beverages sector a notable exception.

Ai Group chief executive Innes Willox said, “2019 closed on a disappointing note for Australian manufacturing with production and employment both weaker in December. The main bright spots were the food and beverages sector, which extended the upward trend recorded by the Australian PMI since 2012, and manufactured exports which are benefitting from the competitive level of the Australian dollar relative to other currencies.

“The machinery and equipment and chemicals sectors remained broadly stable in the month while other manufacturing sectors contracted. Producers linked to construction and housing suffered from the entrenched slump in these areas of activity with drought and adverse weather also taking their toll. The downturn in manufacturing recorded in November and December is a clear warning of the growing risk of a more broad-based slackening of an economy already in the slow lane. It adds weight to the view that serious consideration should be given to further fiscal stimulus,” Mr Willox said.