Global uncertainty hits Australian manufacturers

The manufacturing sector has suffered its first decline in activity for the first time in almost two years, as the international credit squeeze begins to bite.

The Australian Industry Group-PricewaterhouseCoopers Australian Performance of Manufacturing Index fell by 8.4 points in January to 49.2, the first time it has fallen below the 50 point mark, which separates growth from decline, in 20 months.

AiG chief executive Heather Ridout says the “disappointing” result stems from a mix of uncertainty about global economic conditions, rising input costs for items such as fuel and the looming prospect of an interest rate rise next week.

“How events unfold in global financial markets and the future course of interest rates will be important in shaping the prospects for the industry in the months ahead.

“Nevertheless, at this stage manufacturers remain reasonably positive, with moderate growth predicted for the year in the face of intensely competitive market conditions,” Ridout says.

Production, capacity utilisation, employment, new orders and deliveries all dropped in January, but exports remained stable.

On the markets, the S&P/ASX200 is coming back slightly off strong early gains but, at 12.15am, was still up 2.1% on yesterday’s close to 5766.2. The rise is primarily due to a strong US lead – the US Dow Jones Index closed up – and continuing strong prices for base metals.

And the end of the month yesterday saw the marking of two contradictory long-term economic events. Falls yesterday saw Australian sharemarkets record their biggest monthly fall since the crash of October 1987 – but at the same time Reserve Bank of Australia credit figures revealed business borrowing increased by an astounding 24.3% in 2007, the fastest rate of expansion in 20 years.