Australia’s manufacturing industry continued to contract for the third straight month in May with only three of the 12 sub-sectors experiencing growth according to the latest Australian Industry Group - PwC Australian Performance of Manufacturing Index. The seasonally adjusted index in May slumped 0.7 points to 47.7, still below the 50 mark that separate a contraction from expansion in activity.

Ongoing weak domestic demand, cheap imports and the strong Australian dollar contributed to the poor performances across manufacturing including in clothing & footwear and chemical, petroleum & coal products sub-sectors. This was evident throughout most of the country with manufacturing expanding only in Western Australia and Tasmania.

Australian Industry Group Chief Executive, Heather Ridout, said "The manufacturing industry is clearly under escalating competitive pressures magnified by our very high currency which is close to 40 per cent above its post float average against the US dollar.

“Key input costs such as energy are rising and manufacturers face ever-shrinking margins. This continued flat performance highlights the potential risks the sector faces from any poorly designed climate policy measures," Mrs Ridout said.

PwC Global Head of Industrial Manufacturing, Graeme Billings, said "The continued flatness across the manufacturing sector exemplifies the difficult conditions facing the industry due to the persistent strength of the Australian dollar.

“While manufacturing businesses around the globe are facing similar competitive challenges from China and other emerging economies, Australia is one of only a handful of countries that are also experiencing a surge in their currencies and underlines the need for local manufacturers to innovate, reassess their costs, develop new products and processes and continue the search for talent," Mr Billings said.

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