Manufacturing sector struggles continue in March amid uncertainty

Australian manufacturing conditions deteriorated further in March as political uncertainty and global trade disruptions weighed on business confidence, according to the latest Ai Group Australian Industry Index released on Tuesday.

The Australian manufacturing PMI fell by 17.8 points to -29.7, deepening the sector’s contraction. This stands in contrast to the S&P Global Australia Manufacturing PMI, which showed improvement to 52.1 in March.

Manufacturers reported significant challenges stemming from US trade policies, forex volatility and the Australian federal election. Many businesses have paused activity due to these uncertainties along with impacts from recent natural disasters like bushfires and cyclones.

“Some manufacturers reported loss of customers with the slowing economy. Moreover, US tariffs and a weak AUD are impacting the supply of raw materials,” noted the report. Despite some easing in sales price indicators, cost pressures continue to squeeze margins.

The machinery and equipment sector was particularly hard hit, dropping 10.8 points to -29.6, its lowest result since mid-2020. Manufacturers cited weaker capital expenditure and slower demand from construction customers.

Food and beverage manufacturing also suffered, falling 18.8 points to -22.3, with manufacturers reporting lacklustre sales and ongoing labour shortages.

In upstream manufacturing, chemicals declined by 5.8 points to -3.4, while minerals and metals plunged further by 9.5 points to -42.3, heavily impacted by uncertainty around US tariffs.

Capacity utilisation across Australian industry slipped to 79.0 per cent, constrained by labour shortages, equipment limitations and disruptions in raw material supply, reflecting the challenging environment facing manufacturers.

Picture: Ai Group Australian Industry Index