**This story originally appeared in the July 2026 edition of AMT Magazine**

Australia’s manufacturing sector entered 2026 with signs of renewed momentum, but global disruption and rising operating costs continue to test the industry’s resilience.

The latest Manufacturing Signals Report from CommBank shows that manufacturing output returned to growth in late 2025 after a difficult period of contraction. However, many businesses are still managing margin pressure driven by higher freight, fuel and input costs, ongoing supply chain disruption and persistent labour shortages.

For manufacturers, the current environment is creating a more complex balancing act between maintaining day-to-day operational performance and positioning themselves for future competitiveness. “There are signs of recovery in manufacturing, but it’s far from a straightforward external environment. Businesses are having to manage persistent cost and supply pressures, while also positioning themselves for long-term competitiveness,” Belinda Harris (General Manager Commercial Banking QLD, Commonwealth Bank of Australia).

Navigating cost and supply chain pressures

Geopolitical tensions and shipping disruptions across key global trade routes have increased pressure on supply chains and inventory management, with CommBank data pointing to 10-to-14-day shipping delays for the sector, which extends lead times and weakens delivery certainty. In response, many businesses have moved to bring orders forward or increasing stockholdings to strengthen supply security. While these strategies may help reduce exposure to disruption, they also extend cash conversion cycles and increase pressure on working capital and liquidity.

“The days of ‘just in time’ are behind us, but moving to a more ‘just in case’ approach to inventory comes with a real cost. Holding more inputs and stock can improve resilience, but it also ties up capital and puts pressure on cash flow, so resilience is as much a financial decision as an operational one, requiring manufacturers to take a more deliberate approach to how they balance inventory, cash flow and risk,” said Elizabeth Huxley General Manager of Working Capital at Commonwealth Bank of Australia.

Manufacturers continue to face structural challenges that have intensified since COVID-19. Input cost inflation remains elevated, while labour shortages across technical and trade occupations are continuing to constrain productivity and growth capacity.

Operational resilience remains in focus

As a result, many manufacturers are focusing on operational efficiency, productivity improvement, and financial resilience. Rather than relying solely on volume growth, businesses are increasingly redesigning processes, reviewing cost structures and exploring how technology can improve performance.

AI and automation are becoming central to this transition. The report found that around 80% of manufacturers are investing in or planning to adopt AI capabilities, with many exploring opportunities to streamline operations, improve forecasting, reduce manual processes, and support workforce productivity.

“At a time when cost pressures remain elevated, improving productivity has become a key lever for manufacturers, and it’s pleasing to see so many of our customers use AI to drive innovation and efficiency,” said Belinda.

Understanding downstream demand signals

Demand conditions also remain an important signal across the sector, although the outlook varies by industry and end market. CommBank’s analysis points to stronger spending trends across several manufacturing-linked sectors, including food and beverage, consumer goods, electronics, home improvement products, and automotive parts and accessories.

For domestic manufacturers, these trends can provide valuable insight into where demand is strengthening, stabilising or softening, helping businesses identify opportunities to compete, adapt and grow market share in an increasingly competitive environment.

“Demand isn’t moving evenly across the sector, so having a clear line of sight on where activity is picking up or slowing down is really important,” CBA’s Harris said. “It’s helping manufacturers fine tune how much they produce and where they focus,” she said.

Resilience across Australian manufacturing

Despite ongoing pressures, Australian manufacturing continues to demonstrate fortitude and adaptability. The sector’s share of GDP has stabilised in recent years and currently sits around 5.7%, while many manufacturers continue to move towards higher-value, more specialised production across areas such as advanced food manufacturing, medical technologies, and battery-related materials.

In an environment beset by disruption and rapid change, businesses that can improve productivity, strengthen operational resilience, and respond quickly to changing market conditions are likely to be better positioned for growth.

Read the full report

Discover more insights from CommBank’s Manufacturing Signals Report at commbank.com.au/manufacturing

This editorial is intended to provide general information of an educational nature only. Any opinions, conclusions or recommendations are reasonably held or made, based on the information available at the time of its publication. Data relates to the annual period between 01 April 2025 and 31 March 2026 and the same period prior. Commonwealth Bank of Australia ABN 48 123 123 124 AFSL and Australian credit licence 234945.