Manufacturing has been further hit by supply chain disruptions and staff shortages over the summer months, cutting short the the improvement in the industry after last year’s COVID-19 lockdowns.
Australian Industry Group (Ai Group) chief executive Innes Willox said cost pressures are also being felt across the sector with input prices continuing to rise and selling prices only partially recovering these outlays.
The Australian Industry Group performance of manufacturing index dropped 6.4 points over December and January to 48.4, indicating a modest contraction in the sector with the index under 50 points.
“The new orders index fell steeply pointing to a reduction of confidence among businesses dealing with new implications of the COVID-19 pandemic,” Mr Willox said.
The impact of the Omicron variant on the economy will be taken into account when the Reserve Bank board holds its first meeting of the year on Tuesday.
Rising inflation and a sharp drop in the unemployment rate is expected to see the RBA rethinking its guidance on the interest rate outlook, while economists predict it will end its bond buying program this month..
Financial markets are pricing in the risk of a rise in the cash rate from a record low 0.1 per cent by mid-year, while economists appear to be gravitating to the August board meeting.
Until late last year, the RBA was indicating that a rise in the cash rate would not occur until 2024, before shifting its stance to possibly 2023.
RBA governor Philip Lowe had repeatedly ruled out the likelihood of a move in 2022.
The RBA will have plenty of opportunity to spell out the likely path of interest rates in the coming week aside from Dr Lowe’s post-meeting statement.
Dr Lowe will also address the National Press Club in Sydney on Wednesday, while the RBA will release its quarterly statement on monetary policy and latest forecasts on Friday.
Also on Tuesday the weekly ANZ-Roy Morgan consumer confidence index is released, which will take into account the impact of the interest rate hike speculation.
The latest CoreLogic home value index for January is expected to show a further slowdown in house price growth, after posting the fastest annual growth since 1989 at 21 per cent in 2021.
Demand for home loans is also expected to have slowed in December in figures due from the Australian Bureau of Statistics on Tuesday, with economists’ forecasts pointing to a 0.8 per cent decline.
Wrapping up a busy day, retail spending for December is expected to have declined two per cent following two extremely strong months as COVID-19 lockdowns were eased.
By Colin Brinsden, AAP Economics and Business Correspondent in Canberra
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