Manufacturing saw a modest improvement during the June quarter, coinciding with a sharp drop in the Australian dollar in recent months, new research shows.
However, economists say this rare improvement in the sector will not stand in the way of further interest rate reductions by the Reserve Bank of Australia (RBA) in coming months.
The composite index for the Australian Chamber of Commerce and Industry (ACCI)-Westpac industrial trend survey rose to 51.7 points in the June quarter, up from 46.5 points in the previous three months.
A figure above 50 points indicates the sector is expanding, although the latest result is only the third time this has occurred over the past two years.
Respondents general view of the economy economy softened in the quarter, while there was further job shedding and selling prices fell.
However, business costs remained elevated.
"Manufacturing continues to be under significant pressure," ACCI chief economist Greg Evans told reporters in Canberra.
Expectations for the composite index in the September quarter was 54.5 points, which Mr Evans said was due to some relief to a minor depreciation in the Australian dollar and its flow on impact to future competitiveness.
But he said the transition in the economy from mining investment to broader economic growth is still far from locked in.
"We believe the preconditions do exist for further rate cuts given the softness across the economy," Mr Evans said.
Westpac senior economist Andrew Hanlan agreed.
"This survey suggests the economy does need more impetus," Mr Hanlan told reporters.
Westpac expects the RBA could lower the cash rate by a total 75 basis points to two%, with the next 25 basis point reduction coming as soon as August.