"Australian manufacturing and its almost one million employees face deepening risks unless urgent economy-wide reforms are undertaken to return the industry to growth and boost its falling productivity," said Innes Willox, Chief Executive of the national employer association, Australian Industry Group.
"While there are many success stories, Australian manufacturing as a sector slipped into recession last year and is one of the weakest performing industries in Australia today. New Australian Industry Group research identifies four challenges weighing on the industry: soaring energy and input costs, skills shortages, trade risks and productivity.
"We should be worried. Manufacturing directly employs 930,000 people, generating over 12% of our exports and 8% of capex investment despite being only 5% of GDP. It is also an engine of innovation, reinvesting 4.1% of value-added back into R&D – the highest rate of any industry in Australia. Key sectors of the economy such as construction and transport rely heavily on local manufacturing for their wellbeing.
"Manufacturing is also leading the industrial sector on increasing its female share of hours worked – it has risen by 4.7 percentage points in the past ten years to 26.5%. Much of this shift has been driven by technological change, investment and implementation.
"Cost pressures on the sector are excessive. Manufacturer input prices have risen 37% in the five years since the pandemic, compared to only 22% for CPI.
"They are paying 48% more for gas than they were in 2019, threatening the viability of energy-intensive branches of manufacturing. We are seeing an increase in plant closures or reduced activity in key economic sectors due to energy cost pressures.
"Skills shortages are cruelling the industry, with 61% of trades and technician roles in Australia currently difficult to fill. This is especially problematic for manufacturing, where trades comprise 28% of the workforce compared to a national average of 12%.
"Global trade risks also loom large. Australia exported $11.5 billion of manufactures into the US last year, which will face tariffs of up to 60%, depending on the amount of metal content in the product. Advanced manufacturers – which send 23% of their exports to the US – will be the most impacted. Supply chains for the sector, particularly across the Asia-Pacific, are being buffeted by tariff uncertainty.
"We also need to urgently address declining productivity in manufacturing. Labour productivity in the sector has declined by 3.7% over the past decade and overall productivity is down by 1%. The malaise of declining productivity makes it harder for employers to deliver sustainable wage increases, and it weakens our international competitiveness at the very time trade disputes are under extra competitive pressure.
"The economic impacts of the manufacturing recession go much further than the industry itself – the outsized contribution to exports, R&D and innovation mean it will drag on our national aspirations to be a high-tech and high productivity economy.
"Treasurer Jim Chalmers' Roundtable next month can begin a clear reform path around the issues of energy, workforce, productivity and international competitiveness. Given its centrality to our economic success, the issues impacting manufacturing in turn impact the entire economy," Mr Willox said.
Read Australian Industry Group's research: Hard times in Australian manufacturing
