Australia’s manufacturing sector experienced a sharper contraction in December 2024, as new orders and export demand declined at an accelerated pace.
The S&P Global Australia Manufacturing Purchasing Managers' Index (PMI) dropped to 47.8 in December, down from 49.4 in November, marking the eleventh consecutive monthly decline in manufacturing conditions.
Jingyi Pan, Economics Associate Director at S&P Global Market Intelligence noted: “December’s Australia Manufacturing PMI data outlined a further softening of conditions in the goods producing sector. After showing signs of easing in November, the downturn in the manufacturing sector also worsened at the end of the year."
Faster contractions in new business activity were at the heart of the downturn, with firms citing elevated interest rates as a significant dampener on demand. Export orders also weakened due to reduced demand from key markets, including the U.S., Europe, Asia, and New Zealand.
Manufacturing output extended its reduction streak to over two years, as firms worked through backlogged orders amid easing capacity pressures. This led to renewed job shedding in December, highlighting the impact of subdued demand on staffing levels.
Firms responded to the challenging environment by reducing their purchasing activity and trimming inventory levels, including pre-production and finished goods. Inventory adjustments reflected a cautious approach to holding stock during a period of declining demand.
Cost pressures intensified in December, driven by rising input material, energy, and shipping costs. Shipping delays contributed to higher vendor lead times, while input price inflation rose for the first time since July. Consequently, selling prices increased, with firms passing on some of the additional cost burden to clients.
Despite these challenges, business confidence rose to its highest level in 28 months, supported by optimism about potential economic recovery in 2025.
Jingyi Pan commented: “Confidence soared to the highest level since August 2022, with firms indicating expectations for a better 2025 as they look to lower interest rates to provide a boost to the economy. This was a positive sign, hinting at a potential turnaround in the new year.”
