The latest statistics for manufacturing are a sign of hope. But just a sign, it might be a brief summer and there is a lot of work to be done. A lot will depend on future government and business policies.
The latest Australian Industry Group-PricewaterhouseCoopers performance of manufacturing index (PMI) shows that manufacturing activity picked up pace in April.
The sectors with links to construction and resources activity, like construction materials, basic metal products, fabricated metal products, transport equipment, wood products and furniture saw growth strengthen in April. Growth was strongest in the textiles, basic metal products, paper, printing and publishing and in the wood products and furniture sectors. Unfortunately, clothing and footwear continued to decline.
But as Australian Industry Group chief executive Heather Ridout says the sector is still vulnerable to higher costs of financing, reduction in demand flowing from higher interest rates and an emerging skills shortage.
Then there is the Greek crisis. As ANZ chief Mike Smith says, the crisis will have an impact here. “That’s where it will impact us. In terms of the funding that the Australian banks have, in terms of their wholesale funding, obviously credit spreads are going to be more volatile,” Smith said. Watch out for higher interest rates and even tighter credit policies. That will make it even more difficult for manufacturers to get the finance for expansion so these good news figures might fade to black.
The other big issue is that manufacturing is not a priority for the Australian government. As I point out in my column here, policy makers from the the mandarins at the Reserve Bank to Treasury chief Ken Henry say Australia’s relative affluence no longer rides on the sheep’s back – it’s in a consignment of iron ore headed for China. For them, it’s an either-or scenario – they believe such good fortune must come at the expense of manufacturing.
So manufacturing seems to have come through the global financial crisis. Now what? How will it grow? If we want to see a thriving manufacturing sector, we need the following:
A. A banking system that supports the needs of small and medium-sized companies.
B. Capital-equipment programs put on hold when the recession hit in October 2008 need to be unfrozen.
C. A sustainable energy policy that will develop, support, and fund all sources of energy, opening opportunities and cutting costs for manufacturers.
D. An automotive sector that invests in new technology to supports an energy-efficient economy.
E. A less volatile Australian dollar.
F. Government policies to address skills shortages.
G. Closer working relationships between manufacturers and universities
Any other ideas? What else needs to be done to keep manufacturing thriving?
