Manufacturing enters recession as costs and conditions bite

Australian manufacturing fell into recession in 2024 after three years of post-pandemic growth, with the industry facing mounting cost pressures and slowing economic conditions, according to the Australian Industry Group's annual Manufacturing Performance and Outlook Report.

The sector recorded 0.6 per cent sales and income growth, but real output declined by 1.2 per cent while profits fell 3.3 per cent. Employment remained resilient with 1 per cent growth.

The report found manufacturing entered recession in mid-2024, with all branches affected except food and beverage production. The industry is particularly struggling as it contends with trade disruptions, high gas prices and skills shortages alongside broader economic slowdown.

Energy costs emerged as a major pressure point, with manufacturer gas prices rising 55 per cent following Russia's invasion of Ukraine in 2022. Despite global energy markets moderating, prices have barely eased and remain 49 per cent above 2019 levels.

Productivity has become a critical concern, with manufacturing productivity declining significantly since the pandemic and not showing recovery trends. Overall productivity is 1 per cent lower than in 2014-15, while labour productivity has declined by 3.7 per cent.

Skills shortages remain acute, particularly for technicians and trades workers, due to training gaps and mobility barriers. Manufacturing is highly dependent on these groups, leading to the worst workforce shortages among industrial sectors.

The industry faces additional challenges from potential US-China trade war impacts, with Australia positioned delicately between its dominant export market (US) and import source (China). Manufacturing is also grappling with structurally elevated gas prices that particularly affect chemicals and metals manufacturers.

Despite challenges, the report noted investment levels remain structurally higher than pre-pandemic years, and manufacturing continues as Australia's most research and development-intensive industry.

Picture: credit Australian Industry Group