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Australia’s manufacturing sector is entering the 2025–2026 financial year with cautious optimism, tempered by persistent structural challenges and global uncertainty. While government initiatives and technological advancements are driving transformation, the sector must navigate rising energy costs, workforce shortages, and geopolitical volatility to remain competitive.
Sector Snapshot: Modest Growth Amid Broader Economic Headwinds
According to the Australian Bureau of Statistics (ABS), the manufacturing sector employed approximately 902,000 people at the end of June 2024, a 1.0% increase from the previous year. Industry Value Added rose from $132.6 billion to $134.8 billion, reflecting a 1.6% growth—a modest but positive sign amid broader economic stagnation.
However, earnings before interest, tax, depreciation, and amortisation for manufacturing declined by $3.6 billion, highlighting profitability pressures. This contrasts with sectors like construction and professional services, which saw stronger growth.
Workforce Challenges: The Skills Gap Widens
The sector’s digital transformation is being slowed by a widening skills gap. Roles such as robotics engineers, data analysts, and CNC machinists are among the hardest to fill. The ABS reports that job vacancies in manufacturing rose by 8.2% year-on-year, with many positions remaining unfilled for months.
Key challenges include high training costs, limited access to upskilling opportunities for SMEs, and employee resistance to change. To address these issues, manufacturers are encouraged to form partnerships with TAFEs and universities to better align educational curricula with industry needs. Investing in simulation-based training and virtual reality tools can significantly enhance workforce capabilities. Furthermore, leveraging government grants for workforce development provides a valuable opportunity to bridge the skills gap and prepare employees for the sector’s evolving demands.
Investment Trends: Technology, Sustainability, and Resilience
Investment in the manufacturing sector has seen notable growth across several strategically significant areas. Advanced manufacturing technologies, including robotics, artificial intelligence, and 3D printing, are revolutionising production processes by boosting efficiency, precision, and competitiveness in global markets. These innovations are not only enabling manufacturers to meet evolving consumer demands but are also reshaping traditional practices, making them more adaptive to modern challenges.
Green manufacturing is another critical focus area, driven by the global shift toward sustainability. Companies are increasingly developing low-emission products and implementing circular economy models, which emphasise waste reduction, recycling, and responsible resource use. This transition aligns with broader environmental goals and positions manufacturers to tap into the growing demand for eco-friendly solutions. However, such initiatives often require substantial capital investment and long-term commitment, posing challenges for smaller enterprises aiming to stay competitive.
Workforce development remains central to these efforts, as industry demands for skilled labour continue to outpace availability. Upskilling programs, supported by both public and private funding, play a pivotal role in bridging this gap. Collaboration with educational institutions, virtual training technologies, and government-supported initiatives are helping equip workers with the skills necessary to thrive in a rapidly transforming sector.
Additionally, research and development is receiving heightened attention, particularly in materials science and process optimisation. Breakthroughs in these fields promise to unlock new efficiencies, reduce manufacturing costs, and create innovative solutions that set companies apart in competitive markets.
The National Reconstruction Fund, initially proposed as a $15 billion injection into the sector, has faced criticism for its slow implementation and uneven allocation. While the program was designed to provide robust support for vital projects, stakeholders have expressed concerns that much of the funding remains unutilised. The Coalition has suggested reallocating remaining funds to targeted infrastructure development and tax incentives, which could potentially yield faster and more substantial benefits for manufacturers seeking to modernise their operations and enhance their market presence.
Supply Chain Resilience and Localisation
The COVID-19 pandemic and geopolitical tensions have exposed vulnerabilities in global supply chains. In response, manufacturers are reshoring operations and investing in local suppliers. Sub-sectors such as food processing, medical technology, and renewable energy are leading this shift.
Digital supply chain tools—such as predictive analytics and real-time tracking—are being adopted to improve resilience. However, challenges remain including, high logistics costs, Limited domestic supplier networks and regulatory red tape.
Looking Ahead: Strategic Priorities for 2025–2026
Embracing Industry 4.0 technologies, such as advanced robotics, artificial intelligence, and the Internet of Things, is essential to enhancing operational efficiency and driving innovation. Workforce development should focus on fostering lifelong learning and implementing training programs aligned with industry needs to address skills shortages and prepare for future demands. Energy resilience must also take precedence, with investments in renewable energy diversification, storage solutions, and sustainable practices that mitigate risks associated with policy fragmentation.
Additionally, manufacturers must actively engage in policy advocacy, pushing for cohesive, long-term industrial strategies that integrate energy, education, and infrastructure reforms. By adopting these measures, the sector can build robust foundations for resilience while positioning itself to play a pivotal role in the nation’s economic prosperity.
A Sector in Transition
Australia’s manufacturing sector is not just adapting—it is evolving. With the right mix of innovation, investment, and policy support, it can become a cornerstone of national resilience and prosperity. But this requires bold leadership, strategic foresight, and a commitment to long-term reform.
This article was first published in the Manufacturer's Monthly
