Australia's manufacturing sector returned to expansion in April, though the improvement was outweighed by major supply-chain disruptions and a sharp rise in costs linked to fuel and freight pressures arising from the Middle East conflict, according to a survey by S&P Global published Friday.
The headline seasonally adjusted S&P Global Australia Manufacturing Purchasing Manager's Index (PMI) rose to 51.3 in April from 49.8 in March, above the 50-point mark separating contraction and expansion.
The headline PMI was mainly driven by longer supplier delivery times and higher stocks of purchases, while new orders, output, and employment remained in negative territory.
The supply chain disruption in April was largely driven by the Middle East conflict and international freight delays, with fuel shortages and rising fuel costs pushing input prices higher and resulting in the fastest inflation since March 2022, according to the report.
Rising input costs and war-related uncertainty pushed output price inflation to a decade high and led to a third straight monthly decline in manufacturing production.
New orders kept falling, driven partly by weaker foreign demand, while manufacturers still raised purchasing activity and input stocks in April, likely to build safety buffers against future price increases and supply-chain delays despite lower output needs, per the report.
Employment declined for the second consecutive month due to weaker new orders, with firms not replacing departing staff and cutting working hours, while backlogs of work and finished goods inventories also continued to decrease.
Business confidence fell for a third straight month to its lowest since July 2024 amid the Middle East conflict, inflation, and cost-of-living pressures, though hopes of post-conflict demand recovery supported year-ahead production optimism, the report added.