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Manufacturing contracts shrink in November

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AAP

2012-12-03

Australia's manufacturing sector has contracted for the ninth month in a row, with weakness in both production and new orders.

The Australian Industry (Ai) Group performance of manufacturing index (PMI) dropped 1.6 points to 43.6 in November.

While the index posted a slight of 1.1 points in October, it remains below 50, which indicates the sector has been contracting since February.

New orders also contracted for nine months - falling 0.4 points to 43.5 in November, while production declined for an eighth month, by 0.4 points to 44.8.

Industry sub-sectors were also weak, with only one - food and beverages - reporting an expansion.

Textiles, clothing and footwear; chemical, petroleum and coal products; construction materials; basic metals and fabricated metals all reported notable declines.

Ai Group chief executive Innes Willox said the industry was facing several challenges to growth.

"The key concerns for manufacturers remain the high dollar, rising energy costs and weak demand in export and local markets," he said.

"These factors are exacerbated by the ongoing slump in the residential and commercial construction sectors and have not been offset by the reduction in interest rates to date.

"Mounting costs are putting manufacturing businesses under relentless pressure, adding to the case for further interest rate cuts."

The Reserve Bank of Australia (RBA) will meet on December 4 for its last cash rate decision for 2012.

Several economists expect the RBA will cut the rate by 0.25 per cent, from the current 3.25 per cent.