From the Business Spectator
Australia’s weaker currency has helped factory activity hit its strongest level in 12 years, but the dollar’s recent rise may limit further growth.
The Australian Industry Group’s performance of manufacturing index remains above the 50 level separating expansion from contraction, lifting 4.6 points in March to 58.1.
That’s the highest level since April 2004 and the ninth consecutive month of growth.
“The strong manufacturing performance and its expansionary run since the middle of 2015 are in large part due to the boost provided by the lower Australian dollar,” Ai Group chief executive Innes Willox said.
After a prolonged run of contraction, parts of the industry are recovering as the softer currency helps exports and import-competing producers.
“With momentum positive and new orders growing strongly, the positive trend appears to have some way to run,” Mr Willox said.
Despite a surge since mid-January, the currency is still close to 30 per cent lower against the greenback compared with three years ago.
But the Aussie’s spike over the past two and a half months — lifting 10 per cent against the greenback — will test some manufacturers, Mr Willox said.
“And, if maintained, (it) can be expected to slow the pace of recovery over the months ahead,” he said.
Growth in production, sales, new orders, exports and employment fuelled the overall surge in March, but all seven activity subindexes improved.
Five of the eight manufacturing sub-sectors expanded, led by the largest, beverages and tobacco.
Importantly, the machinery and equipment sub-sector moved out of contraction for the first time in more than four years.
It has previously been battered by the step-down in mining investment and the fading car assembly sector, Mr Willox said.
But the large metal products sub-sector continued its run of contraction since September 2010, citing reduced demand and an uncertain economic outlook.
And wages expansion slowed further, reflecting recent patchy demand for labour in manufacturing and lower inflation.