KEY POINTS:
SYDNEY - A stronger Australian dollar is dragging on the nation's manufacturing industry as export levels plateau, a survey shows.
The currency surged to a new 18-year high of US85.31c yesterday, its most powerful level since February 16, 1989 when the Australian dollar was worth US86.46c.
The Australian Industry Group/PricewaterhouseCoopers Australian Performance of Manufacturing Index (PMI) fell 2.1 points in June to 53.1.
Still, the result was above the 50-point level, which separates an expansion from a contraction.
Ai Group chief executive Heather Ridout said manufacturing activity was continuing to expand moderately, but a stronger Australian dollar was hurting sales growth.
"Domestic conditions are clearly strong at present, with significant increases in state government infrastructure spending, personal income tax cuts and the prospect of continuing strong employment growth likely to provide support in coming months," she said.
"But the strong Australian dollar is a significant hurdle for exporters and will contribute to the increasing intensity of import competition.
"Earlier gains in manufactured exports are now beginning to lose momentum. This is disappointing, especially with the strong growth seen in global markets."
The export index fell five points in June to 50 points, a level 1.1 points below where it was a year earlier.
The survey of 200 companies found exports to be the second worst performing index after employment, which stood at a declining 47.8.
Even so, the overall performance of manufacturing index has been above the 50 level for the 13th consecutive month, which means it is expanding.
The resources-driven state of Western Australia had the strongest gain in production, with Tasmania the only jurisdiction not to record an expansion.
The clothing and footwear sector experienced stronger growth in June but activity in the chemicals, petroleum and coal products sectors was flat.
PricewaterhouseCoopers global leader of industrial manufacturing, Graeme Billings, said manufacturers would need to retain a tight focus on costs and lean manufacturing principles.
Inventories in the Australian PMI survey rose by 4.5 points to 55.6 in June.
"It seems production growth may have been running a little ahead of sales recently and manufacturers need to ensure the accompanying rise in inventories is brought under control," Billings said.
- AAP
