A Positive Outlook for Australian Manufacturing in 2024
The Australian manufacturing industry is set for a strong end to the year after three positive data reports landed in late September. The combination of a long-awaited rate cut in the United States, solid job news in Australia and a pick-up in one of the leading sector-specific indices should spell better prospects in the future for heavy steel fabrication companies. The US Federal Reserve’s decision to slash 0.5% of their cash rate, the first such cut in four years, signals a strengthening economy in one of Australia’s key export markets, while on the home front, the unemployment rate grew by 0.1%, indicating a loosening of hiring issues that have plagued the sector. For the manufacturing sector, the quarterly joint report from the Australian Chamber of Commerce and Industry (ACCI) and Westpac charted increases in demand despite ongoing issues in the broader economy generally.
20% of respondents reported an increase in new orders, continuing a positive trend that was also evident in the June quarter, though cost pressures, mining plant and equipment Australia supply chain problems and a difficulty finding staff remain an issue. “The US is the world’s largest economy, so it is very critical to the world’s economic outlook,” said Besa Deda, former Chief Economist at St. George Bank and Westpac’s Business Bank. “That fact that the Federal Reserve has dropped interest rates by half a percent will help US economic activity, which was of the reasons that (Fed chair Jerome) Powell gave for the cuts. He said it was a balancing of risks and he wanted to keep strength in the US economy. Keeping that strength also helps the world economy and the trade sector in Australia, which contributes to overall economic growth and helps companies like ARB expand and create manufacturing jobs. A half percent drop was not fully priced (by the market) and our rates remain steady.
“Though the Reserve Bank of Australia meets next week, I don’t think they’ll move, which means that the differential between the US cash rate and the Australian cash rate has narrowed which is good news for steel fabrication Australia. That is across the curve and it might give more upside to the Australian dollar. For businesses that are importing goods and services that are priced in US dollars, they might be paying a little bit less. It might also reduce risks around imported inflation. The other thing to keep in mind is that shorter term interest rates in Australia – cash rate, one year government bond rate, two-year government bond rate, one- and two-year swap rates – are heavily determined by what the market thinks the Reserve Bank will do with monetary policy. But as you go further out and look at five years, seven years and out to ten years, the yield on those government bonds and rates on the swaps are heavily correlated with US rates. What the US is doing and what the outlook is for inflation in the United States does have a very strong bearing on rates here over the long term, which may have an impact on initiatives such as digitalizing people management in manufacturing.,” said Deda.
