It was not very long ago that many were bemoaning the end of an era as the car manufacturing industry finally reached the end of the road after long drawn decline in Australia. If that long anticipated end evoked apocalyptic visions for the manufacturing industry in the country, all such fears have been comprehensively belied by recent developments.
The Performance of Manufacturing Index (PMI) for the Australian industry registered a significant jump, with a reading of 56.2 for December 2017 (anything over 50 marks an expansion in manufacturing activity). The PMI index for November marked an expansion for the fifteenth consecutive month. For the record, this marks the longest expansionary run since 2005.
But the most heartening aspect of the revival is the structural transformation, currently underway, of the manufacturing sector in Australia from mass produced to customised goods, incorporating new technologies. While the share of manufacturing in terms of industry size and employment has declined over the last two decades, the current evolution is likely to ensure that the industry will continue to remain an important driver of economic activity for the foreseeable future.
On another front, the mining industry is showing signs of revival. Admittedly it is still too early to talk of a turnaround. Nonetheless, with a global economic revival and an upswing in commodity prices currently underway, the future prospects for the mining sector look promising. Prophets of doom who predicted that the relevance of uniquely Australian products like pink argyle diamonds would be a thing of the past might soon have to revisit their gloomy predictions.
From a policy maker’s standpoint, the revival of fortunes in manufacturing and mining is nothing short of a godsend, since both sectors of activity have a multiplier effect of the economy by generating demand for derivative services like electricity, transportation, banking, insurance, healthcare, etc. Should the current trend sustain, the greatest beneficiary will be the tertiary sector.
Which brings us to the most important component of the Australian economy, the services sector, which contributes to over 60 percent of the country’s GDP. Services remain an area of concern, with negligible growth in the month of December, which is traditionally the most active and profitable month with the festive season. Worryingly, even though the Performance of Services Index (PSI) registered a marginal increase in December 2017, the index for the retail sub-sector stood at 44.5 points (anything under 50 marks a contraction in activity), marking ten consecutive months of stagnant or declining activity. Evidently, the rising cost of living in Australia is taking a toll on consumer spending.
Having said that, there is ample reason to believe that a turnaround is on the cards. Official data reveals that the Australian economy generated 400,000 new jobs in 2017, one of the best performances on record, in terms of employment generation. The fact that most of the new opportunities are for full time roles gives even more reason for optimism.
There is no denying that rising living costs and stagnant wages will remain a drag on Australia’s economy over the immediate future. However, in the light of the above data, it would be fair to say that economic prospects for the medium to long term are very promising.
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