Weakening Demand To Eventually Weigh On Wages And AUD

BMI View: Australia's manufacturing sector contracted in November after posting two months of expansion. The sector continues to face narrowing profit margins, which suggests that the recent stabilisation in the Australian job market is unlikely to persist. Apart from the government's efforts to reduce the bargaining power of labour groups, the Reserve Bank of Australia (RBA) has also indicated that it may employ policy measures to help induce depreciatory forces on the expensive Australian dollar (AUD). Ultimately, we believe that market forces, spurred by weakening domestic and external, will be the major force driving down wages and the AUD.

The post-election honeymoon period for the Australian manufacturing sector seems to have ended as soon as it began, with the sector's performance reading in November pointing to a dip back into contraction, coming in at 47.7, after posting activity expansion for the two preceding months. Given that the month's weak performance was due to declines in new orders, production and supplier deliveries, the sector's near-term outlook is quickly turning bleaker. The lack of production activity further suggests that the uptick in employment sub-index is unlikely to persist, in line with our expectations for Australia's overall unemployment rate to edge higher by the end of 2013, despite the decline recorded in September.

Eventual Wage Reductions To Relieve Margin Pressures

Margins Narrowing Rapidly...
Australia - Input & Selling Prices Sub-Indices For Manufacturing Sector

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This article is tagged to:
Sector: Country Risk
Geography: Australia