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Intense import competition slows down growth in Aust

30 March, 2007

Manufacturing growth slowed in the March quarter 2007 due to skill shortages and other capacity constraints and the impact of the high Australian dollar on exports and import competition.

The drought and uneven demand across states further contributed to the result.

At the same time, in net terms, the majority of firms reported expanded activity.  The Australian Industry Group -PricewaterhouseCoopers Survey of Australian Manufacturing result for the March quarter was +6%, down from +17% in the December quarter 2006.

Ai Group Chief Executive, Heather Ridout, said capacity constraints together with an uncompetitive currency were major contributors to weaker activity.

"Businesses are running up against a brick wall of skill shortages and other capacity constraints.  Import competition remains intense while the drought is a continuing drag on activity.  The bar has now been lifted further with the Australian dollar reaching ten year highs.

"The impact of the dollar on exporters of manufactures is already evident in the survey with over 40% of companies who saw their exports fall in the March quarter citing the exchange rate as the principal factor for their poor performance.  This is despite the fact that companies have strived with some success to lift their competitiveness in recent years.

"Demand remains uneven, reflecting the pattern of broader economic activity across Australia, with wide variations in spending across states and continuing consumer concern about interest rates,"  Ridout said. 

PricewaterhouseCoopers Global Leader of Industrial Manufacturing, Graeme Billings, said the moderate gains in activity in the past three quarters points to many local manufacturers working hard to strengthen international competitiveness.

"Significant restructuring is currently taking place in Australian manufacturing as local companies adapt to an increasingly competitive global market place, and become more enmeshed in global supply chains. Supply constraints and a higher Australian dollar means that companies need to be even more diligent in pursuing strategies to reduce costs; improve innovation; and seek out global partners," Billings said.

Summary of key findings for the March quarter 2007:

Production growth was reported in eight of twelve sectors, unchanged from the previous quarter.
- Across the states, production expanded in all states other than South Australia and Tasmania. Growth was strongest in New South Wales and Queensland. 
- Growth in sales, exports and new orders all moderated. Inventories jumped sharply. However, growth in supplier deliveries slowed in tandem with the smaller rises in sales and production. 
- Employment growth strengthened moderately for the second consecutive quarter, but growth in overtime eased. Raw material cost increases eased further, while wages growth also slowed. Consequently, selling price increases slowed for the first time since the December quarter 2005.
- Profits fell for the eleventh consecutive quarter, leading to a further slowing in the growth of new capital expenditure.
- Production is forecast to expand further in the next three months, underpinned by a moderate pick-up in sales and new orders. However, export growth is anticipated to slow.

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