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Australia’s manufacturing sector softened in February as demand and output slowed down.
Although staying in expansionary territory, the headline seasonally adjusted S&P Global Australia Manufacturing Purchasing Manager’s Index slipped to 51 from 52.3 in January, according to a Monday press release from the think tank.
Demand, especially from foreign markets, weakened during the month. Iron ore is one of Australia’s major exports, particularly to China. However, there were concerns that China might impose restrictions on iron ore imports after Australia imposed 10% tariffs on steel ceiling frames from China, according to a February article from the Financial Review. This might further weaken global demand.
Beef is another major Australian export product that could feel the brunt of international tariffs. In December 2025, China announced plans to impose an additional 55% tariff on beef imports from countries, including Australia, according to a Reuters report.
The interest rate hike is also a driver that weakened domestic consumer sentiment in February. The Westpac-Melbourne Institute Consumer Sentiment Index dropped to 90.5 from 92.9 in the prior month after the Reserve Bank of Australia raised the key policy rate to 3.85% from 3.60% as inflation picked up in the second half of 2025.
“Recent economic developments, including the tightening of monetary policy in Australia and external uncertainties, negatively affected both the pace of demand growth and optimism among goods producers,” Jingyi Pan, S&P Global Market Intelligence’s economics associate director, said.
The easing of demand led to a mild contraction in manufacturing output, the first decline in four months, S&P Global said. The survey, however, noted that some manufacturers said machinery maintenance and upgrades were a factor for the production slowdown.
As a result, the hiring of new staff has been weak. Data from the Australian Bureau of Statistics showed that the number of employed people in January grew by 18,000, lower than expected. Meanwhile, the unemployment rate remained flat at 4.1% as the labor market remained tight.
Business confidence among manufacturers has been dampened due to concerns over Australia’s economic growth, S&P Global said.
“Supply conditions notably worsened at a more pronounced degree in the manufacturing sector in February. That said, it was positive to see inflation rates falling slightly for goods producers, breaking from the trend of intensifying price pressures at the start of the year,” Pan said.