Australian manufacturing growth accelerated in April to the fastest pace in almost eight years, increasing the central bank’s scope to raise borrowing costs.
The performance of manufacturing index jumped 9.3 points from March to 59.8, the highest level since May 2002, the Australian Industry Group and PricewaterhouseCoopers said in a survey released in Canberra today. A figure above 50 shows the industry is expanding.
Resurgent manufacturing growth supports central bank Governor Glenn Stevens’ view that the nation’s economy is expanding at or close to “trend.” Policy makers will increase the benchmark lending rate by a quarter-percentage point tomorrow to 4.5 percent, the sixth such move in seven meetings, according to 18 of 24 economists surveyed by Bloomberg News.
Today’s report “shows a sector gaining lost ground as activity across the economy broadens,” said Heather Ridout, chief executive officer of the Australian Industry Group. Still, the “signs that a recovery is gathering pace are no reason for complacency. The sector faces fundamental challenges from emerging skills shortages and the commodity-fueled currency.”
The manufacturing survey, which is similar to the U.S. ISM index, asked more than 200 companies about production, new orders, deliveries, inventories and employment.
Australia’s manufacturing growth has lagged a rebound in the nation’s mining industry that is being stoked by Chinese demand for resources including iron ore and coal. The government yesterday said it would introduce a 40 percent tax on the profits of resource companies.
“While the manufacturing sector still remains behind the levels of mid-2008, the encouraging results are signs the recovery, which has been patchy to date, is now beginning to gain some traction,” Ridout said.
Signs of a rebound in manufacturing may prompt policy makers to continue Australia’s world-leading round of interest rate moves.
Investors are betting there is a 58 percent chance of a quarter-point increase tomorrow at 2:30 p.m. in Melbourne, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 8:44 a.m.
“If the economy is growing close to trend, and inflation is close to target, one would expect interest rates to be pretty close to average,” Stevens said on April 23. Rates for home and business loans “are now pretty close to that average,” he said.
A gauge of production jumped 15.3 points to 64, and employment advanced 7.3 points to 55.2, today’s report showed. Growth strengthened among companies linked to construction and mining, basic metal products and transport equipment.