Australian PMI remains subdued in March

SYDNEY - Australian manufacturing growth remained subdued in March as a slowing housing sector hit order books and skill shortages impact productivity, the latest Australian Performance of Manufacturing Index (PMI) showed.

While the March PMI -- jointly compiled by the Australian Industry Group (AIG) and PricewaterhouseCoopers (PWC) -- rose by 1.8 points to 52.6, it remained well below the 55.4 recorded a year ago.

AIG chief executive Heather Ridout said that any further interest rate hikes would place "unwanted" pressure on the sector.

"The slowing housing sector and import competition are front and centre in terms of the factors affecting manufacturing order books, with skills shortages impacting on the ability of many companies to improve productivity," Mrs Ridout said.

"Higher interest rates would place further unwanted pressures on companies in what is an already challenging environment."

However, UBS economist Arvid Streimann said the data was unlikely to stop the Reserve Bank of Australia from lifting interest rates to 5.75 per cent when it meets next week.

"All up, today's data remained consistent with a sluggish manufacturing sector, with the production component remaining weak despite a solid rise in the month," Mr Streimann said.

"The average level of the PMI in Q1... is unlikely to dissuade the RBA from tightening by a further and final 25 basis points next week, as we expect."

The export sub-index of the PMI hit a new low of 41.0 points in March, following February's 46.6.

The new orders index also declined 0.4 points to 52.0.

Growth in deliveries fell and finished stocks dropped slightly as employment rose.

While production improved, it was still below levels from the same time last year.

Activity in six of the 12 sectors measured grew in raw terms in March.

Growth was strongest in construction materials, clothing and footwear, transport equipment and chemicals, petroleum and coal products, which all recorded higher readings than the previous month.

The index is based on a survey of 221 companies that looks at production, new orders, deliveries, inventories and employment.

It uses a base figure of 50, with numbers above that base indicating growth and the distance above 50 reflecting the strength of that growth.

- AAP