Australia Manufacturing Stays in Contraction

Australia’s Ai Group Industry Index for manufacturing edged up 0.7 points to -27.9 in April 2026, still deep in contraction as cost and demand pressures persisted. Fixed-price contracts limited firms’ ability to pass on rising input costs, while export disruptions, cautious ordering, and shipment delays drove production cutbacks. Upstream, chemicals saw a moderated decline as demand was brought forward, but other segments struggled with weak confidence, supply disruptions, and rising energy costs. Minerals and metals fell to a record low, hit by softer exports, delayed orders, raw material shortages, and skilled labour constraints. Downstream conditions were uneven: some machinery and equipment makers reported steady demand, but others flagged rising raw material and fuel costs alongside customer uncertainty. Food and beverage producers faced higher input, packaging, and transport costs, with limited pricing power squeezing margins further.

The Ai Group Industry Index for Australia’s manufacturing sector fell to -27.9 in March marking its sharpest monthly drop since April 2020. Manufacturing trends remained weak as customer confidence and intensifying costs from fuel and freight weighed on output while inventory building offered only partial relief. The chemicals index increased to -18.1 as large projects boosted volumes despite rising energy costs and supply disruptions. In contrast minerals and metals fell to -30.2 hindered by reduced export demand and shipping delays though some firms brought orders forward. The machinery and equipment index increased to -26.2 amid improved orders for some despite stronger import competition and material sourcing difficulties. Food beverages and TCF fell significantly to -33.2 with higher interest rates and fuel costs weighing on customer demand and operating costs alongside competition from overseas suppliers. Capacity utilization also declined to 73.7% amid these pressures.

The Ai Group Industry Index for Australia’s manufacturing sector remained in contraction at -15.6 in February, with overall conditions still weak. Manufacturing trends were mixed, as soft demand, intensifying costs from regulation, taxes, and energy prices, and cashflow pressure from delays continued to weigh on output, while gradual signs of improvement offered only partial relief. The chemicals index increased to -27.3 as weak demand, rising costs and weather disruptions reduced sales. In contrast, minerals and metals sustained its score at -22.6, supported by isolated areas reporting stronger orders, though weak demand and cost pressures persisted. The machinery and equipment index declined to -24.2 amid regulatory pressures and weak capital spending, despite modest gains for some firms. Food, beverages and TCF eased to -4.6, with promotions and seasonal orders offset by declining retail sales, tariff concerns and cash-flow pressures.