Australia's manufacturing sector declined in December as the PwC Australian Performance Manufacturing Index (Australian PMI) fell 1.3 points to 46.3 to remain below the 50 point level separating expansion from contraction. According to the Australian Industry Group which releases the index, the local manufacturing sector underperformed in December and there were few signs activity would pick up in the near term.

Manufacturers cited weakening domestic demand together with the strong Australian dollar and higher interest rates as negatively impacting on growth in the month. Nine out of the twelve sub-sectors recorded declines in activity including clothing & footwear, textiles and wood products & furniture.

Australian Industry Group Chief Executive, Heather Ridout, said: "The Australian PMI® in December points to the manufacturing sector losing ground and showing few signs of upturn as it finished the year on an ordinary note. The continuation of flat conditions in the sector reflects accumulating structural pressures mounting on the industry along with other trade-exposed sectors in the wake of the mining boom.

"These pressures look set to continue due to the strength of commodity prices and the levels of investment we are seeing in the mining sector. These forces are pushing up the level of the dollar and expectations about the directions of interest rates and inflation. These structural pressures need to be at the centre of policy attention as we, as a nation, grapple with the risks of becoming an unbalanced and insufficiently diversified economy into the future," Mrs Ridout said.

PwC Global Head of Industrial Manufacturing, Graeme Billings, said: "While the manufacturing sector started 2010 with conditions improving strongly, since around March the sector saw first a slowing pace of growth and, over the closing four months of the year, falls in levels of activity.

"In the face of these declines in activity and the continuing slump in new orders, it is imperative that businesses continue to search for efficiencies, improvements and innovative approaches to their markets, products and business models," Mr Billings said.

Australian PMI® Key Findings for December:

* The Australian Industry Group - PwC Australian Performance of Manufacturing Index (Australian PMI®) fell 1.3 points to 46.3 in December on the back of falls across a number of sub-sectors including clothing & footwear, textiles and wood products & furniture. Readings below 50 indicate a contraction in activity.

* The strong Australian dollar, rising interest rates and weak domestic demand had negative impacts on manufacturing in December.

* The clothing & footwear sub-sector recorded the sharpest decline in activity dropping 35.6 points to 27.3, the lowest level since February 2010.

* Increased competition from cheaper imports - a result of the high Australian dollar - affected the textiles sub-sector in particular during the month.

* New orders improved slightly to 44.3 but remained in negative territory for the fourth consecutive month.

* The production sub-index fell to 46.6 and has not been in positive territory since August 2010.

* Manufacturing activity contracted in New South Wales, Victoria, South Australia and Tasmania in December.