The strong Australian dollar together with weak domestic demand, rising overseas competition and the increasing cost of raw materials pushed the manufacturing sector back into the red in March according to the latest Australian Industry Group - PwC Australian Performance of Manufacturing Index (Australian PMI). The seasonally adjusted index fell 3.2 points to 47.9 bringing it below the 50 points level separating expansion from contraction.

The decline in manufacturing activity was most pronounced in the clothing & footwear, food & beverages, textiles and fabricated metal sub-sectors. After a lift in February, new orders were down again in March.

Australian Industry Group Chief Executive, Heather Ridout, said: "The major factor by a long way pressuring Australian manufacturing is the high dollar and this is predicted to remain high for a protracted period of time. The result portends the challenging conditions ahead for the manufacturing sector. However, the resilience of the sector should not be underestimated.

"The fall in the forward-looking new orders sub-index suggests that the weakness across manufacturing looks set to continue in the near term. Governments and the Reserve Bank need to be very mindful of these soft conditions in manufacturing when setting policies and interest rates. The upcoming Federal Budget will be an important opportunity to encourage skills development, innovation and capital investment in the sector," Mrs Ridout said.

PwC Global Head of Industrial Manufacturing, Graeme Billings, said: "The very tough conditions confronting the sector are yet another reminder of the importance of manufacturers' efforts to improve their businesses. Leading manufacturers are active in a range of areas including product and process innovation, energy efficiency and workforce development. Even small improvements make a critical difference at times like those currently facing the industry," Mr Billings said.

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