Manufacturing activity is still falling, failing to respond to a weaker exchange rate and record low interest rates.

The Australian Industry Group’s (Ai Group’s) Performance of Manufacturing Index (PMI) fell 0.1 points to 47.6 in December.

It was the second month in a row the index was below 50, indicating activity in the sector was contracting.

Ai Group chief executive Innes Willox said the manufacturing activity failed to build on the gains recorded in September and October.

“The sector, and indeed the broader economy, remains stuck behind the eight ball, and manufacturing in particular is, as yet, in no position to assume a role in generating alternative sources of growth as the mining boom fades,” he said.

“Notwithstanding that interest rates are at low levels and that the Australian dollar appears to be on its way back down to more realistic levels, conditions in the sector remain very tough.”

Survey participants said the mild, post-election lift in local new orders had generally disappeared, partly owing to a fall in business and consumer confidence, not helped by Holden’s announcement that it would cease local production by 2017.

The only manufacturing sub-sectors to record gains in activity were food and beverages, wood and paper products, and printed and recorded media.