Manufacturing recovery grinds to a halt

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Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)

 

The solid recovery in Australia’s manufacturing sector all but ground to a halt in August as a result of coronavirus lockdowns in the nation’s two most populous states.

Economists expect a similar story when the June quarter national accounts are released later on Wednesday.

The Australian Industry Group’s performance of manufacturing index tumbled 9.2 points to 51.6 in August, holding only just above the 50-mark which separates expansion in the sector from contraction.

“August saw a steep retreat from the healthy expansion in manufacturing performance that has characterised most of this year,” Ai Group chief executive Innes Willox said.

He said lockdowns across the country, particularly in NSW and Victoria, had a major impact on manufacturing, although ongoing strength outside of these states was strong enough maintain to the index in positive territory.

“Looking forward, there was positive news in the further growth in new orders in August and the easing of restrictions on construction will go some way to rebuilding confidence or at least hope among its suppliers,” Mr Willox said.

However, businesses more broadly want certainty that the economy will reopen later this year and state border closures become a thing of the past.

Eighty leading companies, which employ almost one million employees, have signed an open letter to state and federal leaders calling on them to stick to the national COVID-19 recovery plan.

“CEOs are not asking for anything more than for state and federal leaders to stick to the national reopening plan so business can begin to plan and give the country confidence that we are going to move forward,” Business Council of Australia CEO Jennifer Westacott said.

The plan targets double-dose vaccination rates of 70 and 80 per cent among Australians aged 16 and above as stages to end lockdowns and open up both internal and international borders.

The double-dose vaccination rate is at just over 35 per cent.

Meanwhile, the latest national accounts are expected to show extremely modest economic growth in the June quarter, with some economists concerned there could even be a tiny contraction.

Forecasts for Wednesday’s national accounts centre on an economic growth result of about 0.3 per cent.

On the positive side, household and government spending, along with business investment, are expected to have propped up the economy in the quarter.

This will be partially offset by weak exports, business inventories and housing construction.

However, the annual growth rate is expected to be around a whopping nine per cent reflecting the economy’s past glories of a strong recovery from last year’s recession and as the steep seven per cent contraction seen in the June quarter 2020 drops out of the equation.

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