High Inflation Contributes to 12,000 Job Losses in Australia’s Manufacturing Industry: Ai Group

A major peak industry body has revealed that Australia’s manufacturing sector slashed around 12,000 jobs, or 1.3 percent of the total workforce, in the 12 months leading to June 2024.
At a recent parliamentary inquiry on the cost of living, Jeffrey Wilson, a research director at the Australian Industry Group (Ai Group), discussed the challenges facing Australian businesses due to inflation.
Wilson noted that while there has been a significant drop in employment, the growth in the manufacturing sector was negligible.
“Output manufacturing grew by an anemic 0.2 percent in real terms last financial year, with food the only major branch to show any meaningful growth,” he said.
“This reveals the heavy burden that inflation is having on the health of Australian manufacturing.”
Citing data from the Australian Bureau of Statistics (ABS), Wilson said the prices of the inputs used by Australian manufacturers soared by 20 percent on average in the last three years.
The most dramatic increases were seen in ferrous metal products and steel (up 35 percent), electrical equipment (up 40 percent), non-ferrous metals (up 49 percent), basic chemicals (up 51 percent), and natural gas (up 58 percent).
In addition to the surge in material costs, the Ai Group director said the manufacturing industry was under increased employment pressure, with average wage rates rising by 11.5 percent in the past three years.
“That’s the highest increase of any industry in Australia over the same period,” he said.
“Very high increases in minimum wages in 2022 and 2023 by the Fair Work Commission played a role in this, as have recent legislative changes to the industrial relations system that have introduced rigidities, making life harder for manufacturing employers.”
Under the challenging economic conditions, Wilson said the operating margins of Australian manufacturing dropped from 8.8 to 7.9 percent, with nine of the 13 sub-industries reporting declines.
“These costs-of-doing-business problems only worsen our cost-of-living challenges, given the central role that manufacturing plays in our industrial ecosystem and in producing the goods needed by Australian households,” he said.
Barden shared that while her industry saw an increase in turnover, profitability has declined.
“ABS data for the 2022-23 financial year shows that turnover increased by 11 percent, but profits fell by 7 percent,” she said.
“This is a troubling trend driven by several factors that impact our operations and ultimately, the cost of goods for consumers, as well as the ability to employ in Australia.
“Costs of labour, transport, energy, commodities, packaging, warehousing continue to rise, and pressures on household budgets are making it more difficult for businesses to recover the costs and to justify further investment in Australia.”
To tackle those challenges, the CEO suggested the government urgently provide targeted capital investment incentives to help the industry increase competitiveness and productivity while meeting net zero requirements.
Barden said it was hard for food and grocery businesses to justify investments in changing the energy sources of their equipment—such as from gas to electricity—when they did not deliver dividend growth.
“These things can get into the tens, hundreds of millions of dollars for individual businesses, and can be hard to justify,” she said.
“If we have tax incentives, they will help stimulate and bring forward these investments in Australia.”