Coronavirus impact hits Australian manufacturing: Survey

17 Mar 2020 |

Australian business conditions in the manufacturing sector were hit by the largest single quarter decline in 20 years, the latest Australian Chamber-Westpac Survey of Industrial Trends has found.

The survey, undertaken between February 10 and March 3 this year, found the Actual Composite index fell to 45.0 in the March quarter, from 56.1 in December and down from 61.7 during the same period in 2019. A similar drop was last observed in December 2000 when the index fell 12.5 points and, during the global financial crisis, when a 15-point decline was observed over two quarters.

The survey’s Labour Market Composite also points to a further slowing of jobs growth across the economy, declining to 44.7, down from 53.7 a year earlier, its lowest level since 2014.

“The survey shows a steady decrease in business conditions and confidence because of uncertainty around the impact of the coronavirus,” ACCI CEO James Pearson said.

“A number of key markers are down, including employment conditions. While the Federal Government’s initial economic stimulus package will go some way to restoring confidence in the manufacturing industry, we need to deal with supply chain disruptions that manufacturers are particularly exposed to.

“Further stimulus would help support SMEs and jobs at risk. We urgently need both sector-specific and economy-wide measures, including help for the stricken tourism, events and hospitality industries; bringing forward the personal income tax cuts and business tax cuts that have already been passed by the Parliament, and further measures to support businesses to keep people in jobs.

Mr Person said the survey indicated that businesses were still open to invest.

“There was little change in investment intentions, as businesses appear to take a longer-term view on investment.

“The business investment measures included in the stimulus package, along with the very low interest rates, will potentially stimulate considerable investment in plant and equipment for the next three months.

“Small to medium businesses planning to upgrade or purchase new equipment over the next 12 to 18 months are likely to bring forward this investment to take advantage of the very generous $150,000 instant assets write-off and accelerated depreciation for 50 per cent of the value of other eligible assets.”

Westpac Senior Economist Andrew Hanlan said the softer reading on actual conditions was evident across all the sub-components, from employment, new orders, output, backlog and overtime.

“The weak start to the year is largely a product of transitory disruptions to demand and the supply chain, including the bushfires, the drought and the COVID-19 outbreak, as well as the ongoing downturn in home building,” Mr Hanlan said.

“The export uptrend being enjoyed by the manufacturing sector has been interrupted in 2020 as global trade is impacted by COVID-19. Respondents indicated that exports were broadly flat in March and anticipated a decline in June. Helping to cushion the impact, the Australian dollar has weakened sharply, providing a boost to the competitiveness of exporters and import competing firms.

“Sentiment amongst manufacturers understandably has been dented by the disjointed start to the year. A net nine per cent of respondents expect the general business situation to deteriorate over the next six months. Whereas, at the end of 2019, the mood was positive – a net five per cent of firms expected business conditions to improve.

“When it comes to their own business, the survey found that respondents can see through existing challenges and expect a return to normality in the near-term. The Expected Composite printed at a robust 57.5 in March, albeit down from an elevated 61.5 in December. The survey showed respondents expected a resumption of new orders as conditions begin to normalise”, Mr Hanlan said.

Download the Australian Chamber–Westpac Survey of Industrial Trends March 2020 report here.

The Australian Chamber–Westpac Survey of Industrial Trends, Australia’s longest running business survey dating from 1966, provides a timely update on manufacturing and insights into economy-wide trends.

Marie Hogg

Senior Adviser - Media

P  |  0431 299 518

E  |  [email protected]

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