Manufacturers hit by high dollar, soft demand

Latest ACCI-Westpac Survey of Industrial Trends shows slump in profit expectations and investment intentions

Manufacturers hit by high dollar, soft demand
Manufacturers hit by high dollar, soft demand

June 17, 2011

Concerns over the strong Australian dollar and introduction of new taxes have seen a downturn in general business expectations among the country's manufacturers, according to the latest ACCI-Westpac Survey of Industrial Trends.

Results for the June quarter show a slump in profit expectations and investment intentions, as well as a softening in labour demand.

While more than half the manufacturers surveyed expect no change in ‘general business situation’ in the second half of 2011, more respondents predict a deterioration rather than an improvement.

This has resulted in the first negative net indicator in two years.

Contrary to prior predictions, the actual net outcome for new orders and output slumped in the June quarter. However, while well down from earlier levels, forward projections have remained firm.

The net export deliveries indicator has turned negative in the quarter, albeit with marginally positive predictions for the next three months.

Profit expectations for the next 12 months have slumped to their lowest level in two years (from 22 to 0), and investment Intentions for plant and equipment have also fallen dramatically.

ACCI Director of Economics and Industry Policy, Greg Evans, says while overall prospects remain positive, activity indicators and growth expectations have slowed significantly compared to just three months ago.

"Escalating concerns over the strength of the Australian dollar, the imposition of new taxes, soft demand from the household sector and global political and economic uncertainties are dampening demand and investment plans," Evans says.

He says the high exchange rate is exerting an increasingly negative pressure on exports of manufactured products.

"Profit expectations have also slumped due to the squeeze on profit margins, with manufacturers facing rising production costs but unable to recover these cost increases by raising prices."

Evans says it is concerning that the employment outlook may be further aggravated by the recent minimum wage increase.

"Expectations about forthcoming rises in the official interest rate are also adversely affecting demand as well as manufacturers’ employment and investment decisions," he says.

Where in March the Labour Market Composite Index was 10.3, it has now fallen to 0.8.

Other results show that the Actual Composite Index fell by 10.2 points in June from 59.1 in March to 48.9. The Index is now 9 percent below the average in 2010.

The Expected Composite Index fell by 11.8 points from 65.1 in March to 53.3 in June. It is now 5 percent below the average in 2010 but consistent with expectations of a modest expansion.

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