Manufacturing slump shouldn’t startle small firms

The manufacturing sector was subdued in October, but the head of Australian Industry Group says start-ups shouldn’t be alarmed.

According to the latest Performance of Manufacturing Index, the sector experienced a slump in October although the pace of decline slowed during the month.

AIG chief executive Heather Ridout say growth was hindered by the strong Australian dollar and low domestic demand.

“The industry also remains wary of the impact of interest rate rises at a time when strong competitive pressures are ensuring that inflationary pressures remain moderate,” Ridout says.

The textiles sub-sector reported a sharp drop due to weak consumer confidence and a skilled labour shortage. Food and beverages, wood products and furniture also remain in the red.

However, there was a rebound in activity in clothing and footwear, and machinery and equipment.

Across the sector, production levels lifted 3.2 points and employment rose 5.4 points.

Ridout says there are plenty of opportunities in manufacturing, providing you enter the right sub-sector and are prepared for the competitive nature.

“We’re an open economy – the most open economy, arguably, in the Western world. That means you’re always going to be up against a lot of competition,” Ridout says.

“You do really need to be innovative, you need to be very cost competitive, and you need to invest in good technology and good capital that can support your competitiveness and sustainability in the medium-term.”

Graeme Billings, PricewaterhouseCoopers global head of industrial manufacturing, says the current economic climate presents substantial challenges for manufacturers, as they must continue to search for business efficiencies and innovation opportunities.

“There are, however, reasons to be cautiously optimistic about the near term prospects of the sector,” Billings says.

“Production in the clothing and footwear; construction materials; and machinery and equipment sub-sectors rose strongly in October despite the overall fall in new orders, suggesting that businesses expect a pick-up in demand over the coming months.”