In October, the Australian Performance of Manufacturing Index (PMI) rose in October to 57.5 points, up from 53 in September.

The strongest performing sectors were paper, printing and publishing, wood, wood products and furniture, and machinery and equipment, benefiting from solid domestic conditions.

Those sectors exposed to the less-than-favourable export conditions such as chemicals, petroleum and coal products, textiles, fabricated metal products, and transport equipment were among the weakest performers, hampered by the strong currency and weak international demand, says the Ai Group.

Heather Ridout, Ai Group deputy chief executive, urges caution though, stipulating that the recent interest rate rise may have been too premature, particularly with inflation expected to move lower and construction activity likely to ease over the next year.

“It must be remembered that manufacturing activity contracted only four months ago, and any commencement of a new round of interest rate rises would add to the momentum of a rising Australian dollar, weaken our competitiveness, and put the current improvement in activity at risk,” Ridout says.

“The rising Australian dollar, an expected easing in housing activity, uncertainty about the strength of the world economic recovery, prospects of lower inflation, and a weaker profit and investment outlook all argue for a very cautious approach indeed.”

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