The Federal Government is being urged to use its May budget to boost the economy, after Australia’s manufacturing sector shrank for the third straight month.
Manufacturing declined by 3.6 points in February to 45.4 – well below the 50 level that separates expansion from contraction – according to the Australian Industry Group’s performance of manufacturing index on Monday.
Ai Group chief executive Innes Willox said it was important that the government used its May budget to boost domestic activity, “including by delivering on the commitment to cut the company tax rate to 28.5 per cent for all companies”.
The index found manufacturing production and new orders continued to decline, while manufacturing sales contracted for a ninth consecutive month.
Only the manufacturing exports sub-index signalled expansion, for a third month, with much of the growth in exports concentrated in food and beverages.
“While there are bright patches, most notably for food and beverages and producers of building materials, weak domestic demand from businesses and households is offsetting the boost that many domestic manufacturers might have expected to flow from the weaker Australian dollar,” Willox said.
“Particular drivers of flat domestic demand include the sharp drop in mining construction; the progressive closure of automotive assembly; and weak local business investment.
“The lower dollar has also lifted the prices paid for imported inputs, putting additional pressure on manufacturers’ margins. On the positive side, the lower dollar and its further depreciation since September 2014 have boosted manufacturing export volumes over recent months.
“The weakness of domestic demand certainly provides further backing for the Reserve Bank’s decision in February to reduce interest rates and it underlines the importance of using the May Budget to provide a boost to domestic activity – including by delivering on the commitment to cut the company tax rate to 28.5 per cent for all companies.”
– with AAP
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