Manufacturing in Australia slowed in July to its lowest level since late 2005 and new orders dropped as higher interest rates and the global credit squeeze continued to crimp activity, a private survey showed on Friday.
The Australian Industry Group/PriceWaterhouseCoopers Performance of Manufacturing Index (PMI) fell a seasonally adjusted 0.1 points to 46.9, below the key 50 threshold separating growth from contraction.
The figure was the worst since the index touched 43.7 in November 2005.
"The continuing weakness of manufacturing activity is not surprising given that the sector, and the economy more generally, is feeling the ongoing impacts of the Reserve Bank's tightening of monetary policy as well as market-based rate rises," said Ai Group Chief Executive Heather Ridout.
Some economists are tipping that Australia's central bank, which meets next Tuesday, could be forced to lower rates later this year as a slew of economic figures showed the $1 trillion economy slowing faster than expected.
The RBA has has raised rates four times since August, taking them to a 12-year high of 7.25 percent, as it sought to cool domestic demand and restrain inflation at a 16-year peak.
The manufacturing survey's measure of production rose marginally by 1.0 points to 47.1 in seasonal terms, with nine sectors reporting production falls and activity up in three others, led by miscellaneous manufactures.
Capacity utilization rose sharply to 75.0 points from 70.9 in June. The new orders sub-index fell by 1.0 points to 44.8, its lowest level since October 2005. The employment index fell for the fifth consecutive month, although the rate of slowing eased, with the measure climbing 3.6 points to 47.4.