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Manufacturing forecast for 07, predicts slightly better yr

15 February, 2007

A weakening in demand, coupled with the drought and other supply shortages, has contributed to slower growth in Australia's manufacturing industry in January, with The Australian Industry Group - PricewaterhouseCoopers Australian Performance of Manufacturing Index® (Australian PMI®) recording 51.3 for the month, falling 1.1 points.

It was, nevertheless, the sixth consecutive month of expansion in manufacturing activity recorded by the index (readings above 50.0).

Ai Group Chief Executive, Heather Ridout, said growth in both new orders and exports slowed sharply in January, largely reflecting the impact of higher interest rates and unrelenting pressure from lower-cost competitors.

"The drought and shortages of skilled labor and raw materials also continue to be cited as major constraints by many manufacturers.  While the recent fall in energy costs and the apparent peaking in inflationary pressures offer some potential relief down the track, consumer caution and the continued softness in the South East states together with lingering supply shortages, remain major headwinds for the sector in 2007," Ridout said.

PricewaterhouseCoopers Industrial Products Leader, Graeme Billings, said: "The earlier upturn in manufacturing activity appears to have lost some momentum in recent months, and is a reminder of the many pressures confronting Australian manufacturers in early 2007".

"In a likely environment of further subdued demand growth, manufacturers must remain focused on becoming more lean and responsive to customer needs, and at the same time be prepared to invest in skills and innovation," Billings said.

Australian PMIĀ® Key Findings for January:

New order and export growth slowed sharply in the month (due largely to higher interest rates and continuing losses of market share to low-cost competitors), and which contributed to a more moderate expansion in production.
- Employment declined further.
- By contrast, supplier deliveries increased at a faster rate, while inventories increased moderately. Input cost increases eased slightly, although remaining at relatively high levels.
- Activity expanded in six of twelve sectors, down from nine in December 2006.
- Growth was strongest in basic metal products and paper, printing & publishing, following contractions in both sectors in the previous month. The largest falls were in textiles and clothing & footwear. Food & beverages reported its second consecutive decline.
- Activity expanded in all states other than Western Australia and Tasmania. By comparison, five states reported increases in activity in December.