Is a lower dollar helping manufacturing exports?

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Business activity continues to show mixed fortunes across Australia in the second quarter of 2015. Activity across the manufacturing industry fell sharply in June, following a brief expansion in May. The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI®) dropped by 8.1 points to 44.2 points this month (readings above 50 points indicate expansion), the lowest reading since July 2013 (seasonally adjusted).

Local demand for manufactured goods remains generally weak, apart from a few bright spots in food and beverages and housing-related manufactures. In particular, the progressive closure of local automotive assembly is now having a greater impact on downstream demand. Further declines in mining and other business investment in machinery and equipment, and a still subdued economic outlook, are outweighing any positive effects from the Federal Budget and recent interest rate cuts.

More positively, the lower dollar continues to support manufacturing exports, with the exports sub-index in the Australian PMI® expanding for a second month in June and indicated expansion in five out of six months so far this year. ABS trade data for May, also released this week, confirmed the improvement in export values across a range of manufacturing sub-sectors since late 2013, although a number of industries experienced stagnant or even falling export values over this period (see Chart 1).

YiMing_ lower dollar

Chart 1: Manufacturing exports, by sub-sector, FOB value*

 

In particular:

  • Food, beverages and tobacco exports continue to expand solidly, increasing from around $16 billion per year in mid-2010 to over $25 billion in May 2015 (12-month rolling sum of original monthly data).
  • Exports of transport equipment have recovered strongly since mid-2013, up from $4.7 billion per year to around $5.8 billion in May 2015. However, even after this recovery, exports of transport equipment remain well below their peak of $6.8 billion in late 2008.
  • Exports of other machinery and equipment have also improved from late 2013, from around $11.3 billion per year to just over $13 billion in May 2015.
  • There has been moderate recovery in exports for wood, paper and printing products and textiles, clothing and footwear since late 2013. However, the value of exports for these products remains at or slightly below their previous peaks prior to the GFC.
  • Despite a lower Australian dollar and its further depreciation since late 2014, exports of metal products have been broadly stable, at around $34 billion per year in May 2015.
  • Exports of petroleum, chemical and rubber products have fallen since the start of 2013, from just over $12 billion per year to only $10 billion in May 2015. This may have partly reflected the closure of a number of oil refineries in Australia over this period.

Is the lower dollar having an impact on your business? Share your experiences and thoughts below. And you can read more about the latest economic developments every Friday in Ai Group’s Economics Weekly Update.


* FOB value is the price paid for the goods plus the cost of transportation, loading, unloading, handling, insurance, and associated costs incidental to delivery of the goods at the port or place of export in the country of export.
Source: ABS


 

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Yi Ming Hu
Yi Ming joined Ai Group as an Economist in 2013. He has broad experience covering economics and financial markets, having previously worked as an economist for the Reserve Bank. Yi Ming holds a first-class Honours Degree in Commerce from the University of Melbourne and is a CFA charterholder and a CPA.
Yi Ming Hu

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