Weakening economy blamed for manufacturing shrinkage
The contraction of Australia's manufacturing sector has intensified, with lacklustre domestic demand offsetting the benefits of a weaker Australian dollar.
The February edition of the Australian Industry Group's Performance of Manufacturing Index (PMI) fell 3.6 points to 45.4.
It is the third straight month the index has remained below 50, the reading that separates industry-wide expansion from contraction.
"That's largely been driven by a lack of domestic demand," AIG chief executive Innes Willox said.
"That's becoming very clear because as the sector as a whole contracts, exports are growing.
"The currency decline is absolutely helping exporters get their products overseas and to allow them to be much more competitive, but at the same time now we're seeing the domestic economy slowing."
The sub-index for exports remained at 53.9 and has now been in expansion for three straight months.
Manufacturing production fell 3.7 points to 45, while the sub indices for supplier deliveries (46.9) and stock levels (47) also slipped into contraction.
The signs were little better for the forward indicator of new orders, which fell 3.4 points to 44.2.
The index has been released ahead of Tuesday's Reserve Bank board meeting, with many predicting another cut to the official interest rate.
"This very much vindicates the Reserve Bank's decision last month to cut interest rates," Mr Willox said.
"We would hope that if there is a further rate cut to come that that would further stimulate demand, and that's what we need."
Two months out from the Coalition Government's second federal budget, Mr Willox says it is not only the RBA that must stimulate the economy.
"We all recognise that the Government has some long-term structural issues around deficit that it needs to deal with," he said.
"But in the current environment we have a slowing national economy, concerns about rising unemployment and the focus will be on the Government finding modest ways the stimulate the economy.
"There's got to be a range of measures that are examined to grow the economy, not contract the economy.
"Contraction is the last thing we need at this time."
