Manufacturing sector mood hits lowest level since the GFC

While sales are strong at Melbourne-based food packaging manufacturer Pinpak, owner Richard Trchala said he expected conditions to soften over the next year.

“Interest rate increases will surely have to have some effect,” he told The Australian Financial Review. “Retail is still doing quite well. I’m assuming people are just going to have to knuckle down eventually and it’s going to bite.”

Mr Trchala said he was already feeling the effect of a softening economy, with customers pushing back on Pinpak’s efforts to pass through cost increases.

“Twelve to 18 months ago, when we were at the beginning of an increase in input costs, we were automatically passing it on, and we were met with no resistance. Basically, the customers needed goods. They understood the situation, and they accepted it,” he said.

“What’s happened probably in the last three to six months is that we’re getting pushback and they are negotiating, not necessarily all that keen to accept any increases whatsoever.

“So we’ve modified our approach, and we wear what we can.”

Pinpak’s wages bill, input costs, insurance premiums and lease costs have all jumped, though the pace of growth has slowed recently.

Apart from the pandemic, Westpac senior economist Andrew Hanlan said the manufacturing sector was experiencing its weakest conditions since the global financial crisis.

“The December quarter survey reported tepid growth in new orders, a decline in output, and broadly flat employment and overtime,” Mr Hanlan said.

“As reported three months ago and confirmed in this update, the key message and the number one concern of manufacturers is weak new orders.”

New orders have been flat since early 2023, while costs continue to rise, which will weigh on the manufacturing sector’s bottom line.

A net 4 per cent of manufacturers expect profits to decline in the coming year, well below the long-run average of 19 per cent of respondents expecting profits to rise.

ACCI chief of policy and advocacy David Alexander said the challenging environment meant the government needed to reconsider its industrial relations overhaul, which he said would reduce workforce flexibility.

“While businesses are doing the heavy lifting, with increasing corporate taxes underwriting the improving budget position, they are being held back by over-regulation and industrial relations mismanagement,” he said.