Two speed economy and strong $A plagues Victorian manufacturing

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While many manufacturers in Melbourne’s south-east region, Australia’s industrial heartland, have recovered from the GFC and are optimistic about future opportunities, a substantial number are still battling – suffering slim margins and challenging trading conditions courtesy of the strong $A.

 

A survey conducted by the South East Melbourne Manufacturers Alliance (SEMMA) in January found that while around two thirds of local manufacturers had seen revenues increase in 2010 compared to 2009, over a quarter experienced a revenue drop in 2010.

Even where companies have recorded increased sales, this has come at a high cost for some organisations. As one survey respondent noted; “We have seen increased sales but margins have reduced by 50 per cent.” Paul Dowling, Executive Officer for SEMMA, stressed that; “Growth which is achieved at the expense of profitability cannot be sustained long term.”

 

Mr Dowling explained that the survey, which is based on responses from 107 companies with revenues ranging from less than $1 million to large enterprises with revenues $100 million and over, gives an important insight into the conditions being faced by the manufacturing sector.

 

“It’s of fundamental importance that politicians and policy makers grasp that yes, there are positive economic signals for Australian manufacturing, but with the with dollar still at historic high levels and local demand uncertain, especially following the devastating floods in Victoria and Queensland, many manufacturers are still doing it tough,” he said.

 

This was also playing out in terms of employment according to the survey. Although 55 per cent of companies had increased headcount during the year, the remainder stayed put or shrank.

 

As Mr Dowling noted; “There is still clear evidence of a two speed economy affecting local manufacturers. I have spoken personally to a range of SEMMA members in the last couple of weeks about how their businesses are tracking. I’ve heard everything from ‘we have no work at all’ to ‘our order books are completely full for the next few months’.”

 

He said that the lingering pockets of inactivity or stagnation were worrying for the sector as a whole.

 

Many SEMMA members also pointed to the challenges they faced as a result of the high $A and its impact on exports.

 

As one of Australia’s leading manufacturing regions, currently producing 44% b of Victoria’s total manufactured products, the activity in South East Melbourne should be taken as something of a barometer reading for the whole country according to Mr Dowling.

SEMMA has provided the results of its findings to the Federal and State Governments.

 

As far as the outlook for 2011 is concerned SEMMA members remain optimistic with 77 per cent predicting sales this quarter will equal or exceed those achieved in the first quarter of 2010. However a concerning 23 per cent still expect sales to fall this quarter compared to a year ago.