Manufacturing has ‘turned the corner’, ACCI-Westpac survey reveals

Australia’s manufacturing sector is leading the way out of the COVID-19 pandemic, the country’s longest running business survey has revealed.

The report said the construction industry, ‘which had experienced a prolonged downturn, has begun to pick up as low interest rates and the HomeBuilder scheme support housing demand’.

Australia’s manufacturing sector is leading the way out of the COVID-19 pandemic, the country’s longest-running business survey has revealed.

The Australian Chamber of Commerce-Westpac survey of industrial trends for the March quarter, which will be released on Tuesday, shows manufacturers have begun expanding their operations to capitalise on a markedly faster than anticipated economic recovery.

ACCI acting CEO Jenny Lambert said: “The manufacturing sector is now well into expansionary territory, with actual output, new orders, number of employees and overtime worked now only slightly below the levels they were entering the pandemic.”

The Australian Chamber-Westpac composite index of conditions jumped from 48.8 points in the December quarter to 60.4 points. Crucially, this measure passed the 50-point neutral level, signalling the sector is now growing after entering a deep freeze in June last year, when the index fell as low as 24.

The quarterly survey of 259 firms, which was conducted from February 8 to March 1, also showed firms expect better times ahead.

A lift in new orders drove the index gauging expected conditions to an all-time high of 67.

“Australian manufacturers anticipate conditions will continue to improve this year,” Ms Lambert said.

Westpac senior economist Andrew Hanlan said the manufacturing sector had “turned a corner”.

“The brisk rebound in the broader economy is clearly providing a boost to the manufacturing sector,” Mr Hanlan said. “Consumer spending has bounced back strongly. A wave of policy support is driving a strong uplift in home building activity, as well as an increase in business equipment spending.”

In a speech on Monday morning, Reserve Bank governor Philip Lowe pointed to a “quicker and stronger economic recovery than was expected”. But Dr Lowe said “one piece of the recovery that is yet to click into gear is business investment”.

“If we are to have a strong and durable recovery, it is important that the recovery in business investment continues and broadens,” he said.

The survey provided evidence of an impending sharp rebound in spending on plant and equipment. Over a third of respondents said they planned to increase investment over the next 12 months, versus only 7 per cent who expected to spend less.

Ms Lambert warned, however, that the upbeat business investment sentiment was “likely to be tested as government support programs are wound back and the vaccination runs encounter delays”.

“Until the vaccine rollout is complete, the risk of further COVID outbreaks with consequent circuit-breaker lockdowns remains. This will continue to weigh on business confidence and will hold back the manufacturing sector from returning to its full potential.”

The survey also confirmed that while the post-COVID recovery has been sharp, it is incomplete.

The latest report showed 41 per cent of surveyed manufacturers were operating at below “normal” capacity, against 15 per cent at above.

Amid historically low wage growth, close to eight in 10 manufacturers said they expected their next round of enterprise wage bargaining would produce the “same” annual pay rise as the previous year, while 19 per cent said it would deliver greater wage growth. Only 3 per cent said it would be lower.

Originally published as Manufacturing has ‘turned the corner’, ACCI-Westpac survey reveals