Australia’s manufacturing snaps 14-month expansion, raises renewed concern over economic growth

Australia’s manufacturing sector snapped a long streak of expansion, extending up to 14 months, which in turn, raised renewed concerns over the economic health of the country.

The Australia Industry Group (AiG) performance of manufacturing index (PMI) plunged to 46.9 in August, after surging to 56.4 the previous month. The decline ended 13 consecutive months of gains. A PMI reading below 50 indicates contraction in economic activity.

Manufacturing, accounts for about 7 percent of Australia’s gross domestic product (GDP), has grown in spurts over the past year. The sector ran into a soft patch in the second quarter, as the Australian dollar began to strengthen. However, the Aussie has eased off early highs this year, but continues to trade in positive territory against the US dollar in 2016.

The domestic currency is expected to weaken further in the near future, as the market absorbs the latest rate cut by the Reserve Bank of Australia (RBA).

Meanwhile, next week, AiG is scheduled to release its index of services activity that accounts for more than two-thirds of national gross domestic product. The industry group will also release its monthly construction gauge on Wednesday.