Australia’s Ai Group Industry Index for manufacturing rose by 5.1 points to -22.4 in May 2026, reaching a three-month high that indicated a modest improvement but still left the sector firmly in contraction. Firms continued to struggle with rising logistics costs, persistent supply chain disruptions, elevated input prices, and uncertainty around future supply, while weak demand and higher operating expenses continued to weigh on sales and profitability.
Upstream, chemical manufacturers reported reduced re-orders, increasing competition from overseas suppliers, and mounting fuel, labor, and rental costs. Metals producers benefited from stable repeat business linked to rolling stock and refurbishment projects but noted a continued lack of new orders.
Downstream, machinery and equipment manufacturers pointed to subdued demand for capital goods, ongoing supply constraints, and higher borrowing costs. Food and beverage producers gained some support from diversifying their product offerings, though growth remained constrained by rising fuel prices, shortages of raw materials, and generally softer economic conditions.