Australian manufacturing has been booming for some time now. The AI group’s Performance Manufacturing Index (PMI) had Australian manufacturing at 59.2 in the report.
On this index, a score of 50 is neutral, meaning no expansion or contraction occurred in that reporting period, and so the 59.2 score shows significant expansion. This is not a new development, either, but part of a longer trend that started in 2016. The PMI has been significantly expanding for seven months at this point, with the next report due on June 1st expecting to be in line with the trend.
In December, Australia also surprised economists and manufacturing analysts around the world with a record trade surplus, at 3.51 billion Australian dollars. This is all great news for Australian businesses as well as for the government, however it is down to businesses to capitalise on these gains and maintain the boom.
Weak Australian Dollar Promotes B2B Supply Within Australia
One of the main factors contributing to the boom in Australia is, surprisingly, the continued weakness of the Australian dollar, both against the US dollar and other trade partner currencies. The Australian dollar has seen some fluctuation upwards, but is nowhere close to its price just three years ago when it had about a one to one relationship with the US dollar, and was worth about 100 Japanese yen. Now, a US dollar buys around AUD 1.35, and an Aussie dollar is worth only around 83 JPY. You can see how the currency has changed in relation to other important trade partner currencies on sites like City Index, where you can also see how the ASX 200 and other share indices have been affected by the depreciated AUD and manufacturing boom.
With the currency depreciated, it becomes far less appealing for Australians to use imported products, as consumers or in their supply chains. This has meant a lot of opportunities for B2B companies to supply B2C companies within Australia. By manufacturing more, manufacturers can meet the demands of Australian businesses that aim to sell products both within Australia and to customers in other countries.
Weak AUD Also Drives Exports
For companies who sell either their own products or Australian made products from their B2B supply chain, the weak dollar makes it possible to attract more trade from buyers in other countries. Australian made goods can be purchased more cheaply by companies or consumers in countries whose currencies are strong against the Aussie dollar. Ecommerce retailers can take advantage of this by promoting their products in other countries, and B2B companies can seek to supply businesses outside of Australia who pay in other currencies.
Keeping Up Momentum on The Current Boom
Should the Australian dollar begin to rise in price, this may well affect the strategies currently in play to keep bolstering the Australian economy though increased output and export driven growth, and challenge the economy once more.
However, unless something unusual happens in the markets in the Pacific region, for the time being it seems that the best approach for businesses to take is to keep up manufacturing, look to capitalise on the boom in their own supply chains, and to try and take advantage of the opportunities to create new customer and client relationships with foreign buyers who want to buy cost effective Australian made goods.