Performance and Outlook for Australian Manufacturing

**This article was originally published in the October 2025 edition of AMT Magazine**

A new report from the Australian Industry Group (AIGroup) says, “Metals and machinery and equipment grew strongly since the pandemic but have seen some of this growth ease in 2024 with more difficult economic conditions.”

According to the Manufacturing in Australia: Performance and Outlook Report 2025, produced by the AIGroup in July, manufacturer margins have been improving over the last decade in Australia, to return to near the all-industry level, “reflecting the consolidation toward more competitive subindustries.”

The report says that manufacturing is the only industrial sector to see a material improvement in business margins, with others still near long-term levels. It said post-pandemic growth saw manufacturer margins improve from 10% to 12% and now exceed the all-industry rate for the first time since 2007.

Investment levels in Australian manufacturing have also improved, with the report showing levels rose significantly following the pandemic, but growth levelled off in 2024.

“Industrial capex levels leaped following the pandemic, as businesses invested to meet growing demand from economic recovery and disrupted supply chains,” the report says.

“Manufacturing investment levels in 2023 were 55% higher than in 2019. Allied industrial sectors saw a similar degree of uplift. “As conditions deteriorated in 2024, manufacturing investment eased back by around 10%… however, capex levels remain structurally higher than the years before the pandemic.”

There was challenging news too, with the report noting four factors that have combined to put pressure on the manufacturing industry –productivity difficulties, skills shortages, trade risks and energy costs.

Australia’s manufacturing sector has taken a hit, contracting 2.6% over the last year after two years of growth following the COVID-19 pandemic. The report says overall productivity in manufacturing was 1% lower in 2023-24 than it was ten years prior – with labour productivity falling 3.7% over the same period, with a major fall during the pandemic.

This makes manufacturing one of only four industries – alongside construction, utilities and arts & recreation – to record productivity declines over the past decade, at a time when the nation’s overall productivity rose 4.7%.

AIGroup head of research and economics Jeffrey Wilson wrote in a research note that this was exacerbating the skills shortages, lowering the ability of employers to increase wages and reducing the financial resources available for employers to invest in research and development.

“It weakens our international competitiveness at the very time when trade disputes are putting our manufacturers under extra competitive pressure,” says Wilson.

Shortages of skilled labour mean 45% of advertised job vacancies go unfulfilled, the report says, with greater shortages remaining in technical and trades roles (61%) and professional roles (51%).

Further to this is a rise of manufacturer input prices by 37.5% in the five years since the end of the COVID-19 pandemic, due in part to rising gas prices. This outpaced the growth of consumer (22.2%) and Australian industrial (20%) input prices, with Australian manufacturers paying 48% more for gas today than they were in 2019, due to price linkages with the export LNG sector.

Wilson says that as metals manufacturers cannot substitute gas for a lower cost electricity supply, surging energy costs must be borne on a balance sheet.

“This means prices are largely set in global markets, and rapid cost increases can be difficult to pass on,” he wrote.

The report noted that manufacturing is Australia’s most R&D “intensive industry, but how can rates be maintained while conditions are weak?”

AIGroup says manufacturing also spends more on R&D investment than any other sector, with spending exceeding $5 billion in 2021-22, and 4.2% of value-add reinvested.

This high rate of reinvestment reflects a sense of competition with imports at home and challengers abroad, driving innovation among Australian companies.

Nonetheless, Wilson says there is a clear and pressing need to get manufacturing activity back on track.

“Manufacturers will struggle to make the investments needed to raise productivity while their balance sheets are weakened by high energy prices, and they cannot recruit the technical specialists required for technology projects,” he says.

“With recession conditions already in play and the risks of the trade war looming, now is the time to urgently address these issues confronting our manufacturing sector.”

R&D Investment will be key for the future of Australian manufacturing.

The full report, Manufacturing in Australia: Performance and Outlook Report 2025, is available at go.aigroup.com.au/manufacturing.