FX.co ★ Australia Manufacturing Contracts Further on Weak Demand

Australia’s Ai Group Industry Index for manufacturing fell further into contraction in July, dropping to -19.6 from June’s upwardly revised -13.9 and partially reversing the strongest improvement seen in eight months. The sector remained under strain as subdued consumer demand, rising input costs, and heavier compliance requirements continued to compress margins.

Upstream industries delivered a mixed performance. The chemicals sector contracted at a slower pace despite volatile costs and softer construction demand. In contrast, metals lost momentum following June’s rebound, with firms reporting rising costs, heightened customer uncertainty, labour shortages, and increased employment expenses.

Downstream, the machinery and equipment sector recorded its best outcome since July 2024, supported by robust mining and defence orders, reduced competitive pressures, and stable customer sales. The food and beverage sector weakened as higher fuel and input costs eroded margins, although stronger export demand from Europe, Asia, and China helped to partially offset declining domestic orders.