Bloomberg News

Australian Manufacturing Shows First Expansion in Six Months

January 03, 2012

Jan. 3 (Bloomberg) -- Australian manufacturing expanded for the first time in six months in December, driven by gains in basic metals, transport and publishing, a private survey showed.

The manufacturing index was 50.2 last month compared with 47.8 in November, the Australian Industry Group and PricewaterhouseCoopers said in a survey released today. It was the third reading for 2011 that was above 50, the dividing line between expansion and contraction.

“Pockets of strength in the Australian manufacturing industry remain,” Peter Le Huray, PwC’s Australian head of industrial products, said in a statement. “This suggests that the efficiency and productivity improvements achieved by the manufacturers are better positioning them to ride out a global economic downturn.”

The Reserve Bank of Australia lowered its benchmark interest rate by a quarter percentage point to 4.25 percent on Dec. 6, making its first back-to-back rate cut since 2009, to help safeguard the economy from Europe’s debt crisis. An investment boom meant there was no “strong need” based on the domestic outlook to reduce borrowing costs, policy makers said Dec. 20 in the minutes of that meeting.

The Australian dollar reached $1.1081 on July 27, the highest level since it was floated in 1983, before declining in subsequent months as concern intensified about the fallout from Europe’s sovereign debt crisis. The currency dropped 0.7 percent in December, the fourth decline in the past five months.

Structural Shift

Australia, the only developed economy to avoid a contraction during the global recession of 2009, is experiencing what RBA Governor Glenn Stevens has called a “structural adjustment” prompted by the biggest mining boom in a century and the resulting climb in the nation’s currency.

Resource projects in Australia valued at A$456 billion ($467 billion), fueled by companies such as BHP Billiton Ltd., have cushioned a slump in manufacturing and services hit by a record currency and subdued consumer spending.

The manufacturing index’s reading on wages climbed 4.8 points to 61.1 and inventories rose 3.4 points to 53.9, today’s report showed. Supplier deliveries added 6.9 points to 52.8.

A gauge of employment advanced 0.7 point to 46.0 in December, and new orders gained 1.8 points to 49.9, the report showed. The production measure gained 1.4 points to 51.0, while exports dropped 6 points to 47.4.

Metals, Coal Decline

Seven of the 12 sub-sectors saw activity fall in December, including declines in textiles, fabricated metals and chemicals, petroleum and coal, the report showed.

“It needs to be borne in mind that the majority of the sub-sectors recorded declines, highlighting the continuing impact the high dollar, soft domestic demand and the uncertainty in the global economy are having on the industry,” said Heather Ridout, the AIG’s chief executive officer, in the report. “The sector remains vulnerable to any renewed downturn in the global economy and to the underlying structural pressures associated with strong commodity prices,” said Ridout, who will join the RBA board Feb. 14.

The manufacturing survey, which is similar to the U.S. ISM index, polled more than 200 companies about production, new orders, deliveries, inventories and employment.

--Editors: Edward Johnson, Benjamin Purvis

To contact the reporter on this story: Garfield Reynolds in Sydney at greynolds1@bloomberg.net

To contact the editor responsible for this story: Edward Johnson at ejohnson28@bloomberg.net


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