Manufacturing decline is limited: report

AUSTRALIA'S manufacturing sector has faced difficult economic conditions over the past decade but new research has pin-pointed a sharp downturn in overall productivity to just three key areas.

A staff working paper by the Productivity Commission found that while investment in manufacturing has risen over the long term, hours worked and employment in the sector have declined.

The report found no "overarching systemic reason" for the decline in manufacturing's rate of multi-factor productivity growth.

It declined by 1.4 per cent a year between 2003/04 and 2007/08 compared with 1.3 per cent productivity growth a year between 1998/99 and 2003/04.

"However, three of its sub-sectors - petroleum and chemicals, food and beverages, and metal products - collectively accounted for two-thirds of this decline between cycles," the report released on Friday shows.

One influence has been from the appreciation of the Australian dollar and changing competitive conditions.

It also noted that there has been a lag between new capital investment in these sub-sectors and the output from that investment.

In particular, additional investment in petroleum refining to meet new environmental standards, while improving the quality of outcomes, did not raise output.

Changes in consumer preferences have also had an impact on productivity, such as significant growth in smaller-scale bakeries that use more labour-intensive processes.

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