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The Australian manufacturing sector is expected to have a significant slowdown and is one of the first industries to experience sluggish growth, as supply chains are disrupted through the closure of factories across major manufacturing suppliers such as China, Korea and Japan.
The Chinese manufacturing sector, in particular, has been hit hard by the virus outbreak, which will have cascading effects on the Australian sectors. The Australian Industry Group (AIG) Performance of Manufacturing Index (PMI) returned its lowest result in almost five years, in February, and it is the first time the index has returned 4 consecutive quarters of contraction.
The effects of drought and weak demand from the construction sector and the general slow pace of the Australian economy in 2019, were all named high-priority concerns for the manufacturing sector at large. The main effects of the coronavirus are anticipated to be in the disruption of supply chains, which are adding to the slowdown and deepening the impacts for the sector. Many of the Australian manufacturing sectors inputs and raw materials are sourced from China. Therefore, delays 
and inability to access these inputs have the potential to disrupt domestic manufacturing.
Moreover, the recent bushfires and drought created a sluggish growth period for the sector in 2019, and the uncertainty of the coronavirus outbreak has added to this drag. According to the AIG, the only sector to report an expansion in 2020 so far is the food and beverage sector, which is largely attributable to the buoyant Christmas and holiday period. At present, the coronavirus is mainly impacting the fast-moving consumable items with supply chains linked to China. ‘Heavy’ manufacturing sectors, such as equipment and machinery, also face supply chain disruptions which have caused difficulties across the board, as factories in China close.
The forecasting indicators suggest the manufacturing sector will not recover any time soon; the new orders index in the Australian PMI hit the lowest level since 2013, suggesting weak demand into the future.
The manufacturing sector already has visible shortages, with many household goods including appliances, clothing and footwear produced in China. According to the United Nations Comtrade Analytics, China is Australia’s largest partner for both exports and imports, with exports valued at US$75 billion and imports valued at US$51 billion in 2017.
However, the upside of this for the manufacturing sector is the opportunity for Australian made and manufactured items to fill in the gaps left by Chinese companies. The low valued Australian dollar makes our locally manufactured goods more competitive overseas, and the lack of supply from China gives us the opportunity to fill this gap in the international market.
This is already being seen in the healthcare and consumer goods area, with the likes of toilet paper, hand sanitizer, and healthcare goods such as x-rays. The large increases in production in these areas can largely be attributed to the coronavirus outbreak. As the international market looks to the high-quality of Australian made products, there is likely to be increased demand in these areas of the manufacturing sectors.
If you have any questions or require further information or assistance in preparing your organisation for the potential impacts of COVID-19, please contact us today.
