Australian Industry Group chief executive Innes Willox is encouraged by the turnaround in conditions, but says the sector has yet to return to pre-COVID conditions.
The Ai Group performance of manufacturing index increased by 3.2 points over the past two months to 55.3 points, indicating the sector is expanding.
“In December and January Australian manufacturing continued to make up ground lost during much of 2020,” Willox said.
“The turnaround from September is more decisive than was expected and is an encouraging sign of the resilience of Australian manufacturing and the effectiveness of fiscal and monetary policy measures in response to COVID.”
Prime Minister Scott Morrison is preparing to end one major spending measure – JobKeeper wage subsidies – at the end of March.
“You can’t run the Australian economy on taxpayers’ money forever,” he warns.
And the Reserve Bank is not expected to change its view on the interest rate outlook when its board meets tomorrow for the first time this year.
It has repeatedly said it will not raise the cash rate until inflation is sustainably within its two to three per cent target.
The annual rate of the consumer price index ended 2020 at just 0.9 per cent.
The central bank will get plenty of opportunity to express its current thinking on the economy this week, with governor Philip Lowe addressing the National Press Club on Wednesday before being quizzed by politicians on Friday.
The bank is also preparing to release its quarterly statement on monetary policy, which will contain updated economic forecasts.
Treasurer Josh Frydenberg is unwilling to make predictions on the unemployment outlook, even though he says the labour market has outperformed expectations.
This has seen the jobless rate unexpectedly fall to 6.6 per cent, when Treasury was predicting a rate of 7.5 per cent in the March quarter.
Asked on the weekend whether unemployment would still get up to 7.5 per cent, Frydenberg said: “Let’s wait and see”.
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