The Australian Manufacturing Boom- Can it Be Sustained?

Back in September, the Australian economy experienced a sudden decline after 100 consecutive months of growth, contracting by 0.5% and recording the highest quarterly drop since the great recession.

This came as a surprise to business-owners and investors, with many caught cold by only the fourth quarterly contraction since Australia's last national recession back in 1991.

While some argued that the decline highlighted the underlying sense of complacency that had gripped the Australian economy, it has since rebounded by reporting relatively impressive growth in the nation's all important manufacturing sector.

The Rise of the Australian PMI: Can it Be Sustained?

More specifically, the nation's manufacturing sector expanded strongly in March, after a surprisingly solid and robust quarterly performance. The Australian PMI rose by 1.8 points to register an impressive score of 57.5 for the month, driving higher levels of business confidence while also representing the sixth consecutive month of growth since September's sudden contraction. Market analysts also reported growth in the Australia 200, as sentiment rose among investors and traders. Broker Notes recently compiled a report detailing the trading habits of Australians and as well as 9.6 Million online retail traders which I would advise taking a look at.

Even more impressively, all seven sub-indexes within the Australian PMI expanded in March, with sales, new order generation and production all strengthening (despite showcasing slightly slower rates of growth from last month). The best news was delivered by the performance of non-metallic and mineral products, which remain central to Australia's economy and saw a pronounced increase in demand to achieve a PMI score of 64.8. Similarly, food and beverages also rose to 63.4 points, meaning that the key drivers of the Australian economy were rebounding once again.

The numbers make for interesting reading, while they suggest that the recent levels of growth may not be sustained indefinitely. Demand has continued to recover during the first financial quarter, of course, while he price of strategically important commodities such as coal have also increased incrementally during this time. Despite this and sustained activity in the agricultural sector, however, export growth peaked during February and could be about to tail off in relation to the buoyant performance of 2016.

Final Thoughts: What Role Will the Dollar Play in Sustaining Exports?

One issue that may prevent export growth is the strength of the Australian Dollar (AUS), which recently recorded marginal gains on the back of strong Chinese economic data (China remains one of Australia's primary trading partners). With the currency continuing to grow in value and showcasing impressive gains against the US Dollar (USD), the price of exports is increasingly and creating a slightly less competitive proposition for trade partners. This is a similar issue to the one that is blighting North America itself, with President Donald Trump hinting that the USD has become too strong and counterproductive to his core economic policy.

The only other problem surrounding future growth is the geopolitical climate in Asia, which is continuing to worsen amid rising tensions between America, North Korea and Russia. This is destabilising the region and creating huge levels of volatility, which could in turn dampen demand and quell business (and investor) sentiment. It is therefore hoped that a peaceful resolution is achieved, so that economic growth can be sustained in the region over a sustained period of time.

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