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Moderate year forecast as manufacturers tighten belts in 08

25 January, 2008

An Australian Industry Group survey of manufacturers has forecast a moderate year for the sector in 2008 characterised by belt tightening and global uncertainty.

The survey of more than 500 manufacturers across all states conducted in late December 2007, found that while nominal sales are expected to repeat the robust performance of 2006/7, growth in volume terms will remain moderate.

Nominal sales are expected to rise by 7.2% in 2008 (marginally higher than the 6.9% rise in 2006/7).  However, adjusting for goods price movements, sales volumes are expected to increase by a modest 2.7% (just above the medium term average).

Australian Industry Group Chief Executive Heather Ridout said manufacturers appeared to be optimistic but very cautious.

"It is encouraging that manufacturing sees real opportunities for itself from expectations of a strong domestic economy in 2008.  Less encouraging are the weak expectations for exports.

"With global financial markets experiencing substantial turbulence and continued talk about further interest rate rises, manufacturers are wisely taking a cautious approach and building up a safety margin in case domestic demand conditions weaken.

"The belt tightening can be seen in the survey data which forecasts a slowing in the growth of capital expenditure and research and development, and companies making greater use of imported goods and production inputs.

"The weakness expected in export volumes is no surprise. Our research has identified that virtually no manufacturer is immune from deteriorating export competitiveness when the dollar stays around 85 cents.  There is an urgent need for the new Rudd Government to commence its review of trade policy and look to enhance supports for exporters," Ridout said.

Much of the sales performance will be driven by domestic demand, as the continuation of a strong Australian dollar weakens export performance.  Nominal export growth is expected to be 7.5% in 2008, well down on the growth of 13.7% in 2006/7.  Price movements, particularly for metals and fuel, however have inflated nominal export performance in recent years.  Adjusting for these movements suggests that in volume terms manufacturing exports will grow by less than 1% in 2008, down from 3.4% in 2006/7.)

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