Australia's manufacturing sector expanded in May, but the pace of growth slowed from the previous month amid intense supply-chain disruption and as new orders recorded their sharpest decline since October.
The seasonally adjusted S&P Global Australia Manufacturing Purchasing Managers' Index came in at 50.7 for May, down from a 51.3 reading in the previous month but still higher than the 50 mark that separates growth from contraction.
Lower sales, elevated prices, and uncertainty generated by the Middle East conflict all factored into a further decline in manufacturing production in May, as output declined for a fourth straight month, the index provider said Monday.
The impact of the Iran war remains widespread, with higher fuel costs resulting in longer delivery times for suppliers amid delays in international freight transport. At the same time, output price inflation accelerated and was the steepest since August 2022.
"Familiar themes were evident in the Australian manufacturing PMI data during May, with the war in the Middle East continuing to cause steep price rises and supply-chain disruption," said Andrew Harker, economics director at S&P Global Market Intelligence. "As a result, firms are finding it increasingly difficult to secure new orders."
On a positive note, business confidence ticked higher alongside a slight increase in employment as firms maneuvered to accelerate production lines. However, the rise in employment is "unlikely to be sustained" if new business continues to slide in the near future, Harker said.
He added that Australia faces the prospect of posting a fall in production in the second quarter "unless we see a marked turnaround in fortunes during June."
The Reserve Bank of Australia has raised borrowing costs three times so far this year. The central bank expects inflation to remain above its 2% to 3% target range for a prolonged period after a recent surge in fuel and related commodity prices.
