Australian Manufacturing Outlook: Why Now Is the Time to Hunt for Margin

At the Southern Strength Agile Manufacturing Network event on 29 September 2026, Ryan Felsman, Senior Economist (Director) at Commonwealth Bank of Australia’s Global Economic & Markets Research team, presented his outlook for the Australian economy and manufacturing.

Economic uncertainty and rising input costs are squeezing Australian manufacturers. But quieter periods are also the best time to find savings, build the case for investment and prepare for the next wave of demand.

The outlook: pressure on costs and demand

Felsman described an economy facing renewed inflation, higher interest rates and softer household demand. For manufacturers, elevated energy prices, skills shortages and uncertain orders compound the challenge.

• Higher input costs: Gas and electricity remain a major concern for energy-intensive businesses.

• Labour constraints: Shortages in specialised trades persist, alongside elevated wage growth.

• Uneven demand: Some machinery and equipment makers report stronger orders, including from mining and defence, while other subsectors are slowing.

• Opportunity: Automation, advanced production techniques and specialised manufacturing offer real upside.

  
  

When you can’t pass cost increases on to customers, margin is the only lever left.

Hunt for margin while orders are quiet

When orders slow, the focus is usually cash flow and keeping the workforce. Both matter. But a lull is also when you have the capacity to ask where costs are unnecessarily high, which processes use more energy or material than they should, and where bottlenecks and avoidable downtime are hiding.

Once orders return, management attention goes back to deadlines and firefighting, and the work doesn’t get done. The goal isn’t to cut indiscriminately. It’s to remove waste and strengthen margin before the upswing.

Energy is a good place to start. Compressed air leaks, excessive operating pressures, inefficient motors and process heating, and consumption outside production hours often go unnoticed for years.

“But I don’t have the cash or the people”

It’s a fair objection. In a downturn, no one has spare capacity or budget for an improvement program.

Two things help. First, an independent diagnostic is bounded: a few hours of your team’s time for site access and data, not months of their attention. Second, there is currently funding available. The NSW Net Zero Planning Grant co-funds up to $25,000 of diagnostic work plus emissions measurement and reporting. It is open to NSW businesses spending at least $200,000 a year on energy at a single site, or $500,000 across multiple NSW sites. Applications close 30 November.

What the diagnostic delivers

1. A clear picture of your cost base: where energy, materials and labour costs actually sit, and which activities drive margin.

2. A prioritised list of opportunities: each quantified by savings, cost, technical feasibility and payback, so you know which are quick wins and which need a business case.

3. Emissions measurement and reporting: a credible baseline, increasingly asked for by customers, tenders and lenders.

4. A plan you can act on: sequenced around production, with results you can track.

   
   

The same material builds your internal business case. Instead of “we think a heat pump might pay off”, you have costed options, payback periods and an investment plan your board and bank can assess.

Preparing for a more competitive future

Felsman also pointed to opportunities for Australian manufacturing to become smaller, smarter and more specialised, with technology, engineering capability and intellectual property playing a bigger role. Automation and AI can lift productivity where Australia can’t compete on labour costs or scale, and supply chain resilience and reliable, competitive energy will matter.

Not every improvement needs major capital. Some are simple operational changes; others need a fuller business case. Knowing which is which is the point of starting with a diagnostic.

Don’t wait for the recovery

You can’t control interest rates, global energy prices or the economic cycle. You can understand your costs, remove avoidable expenditure and have investment-ready projects waiting when conditions improve.

At AC Consulting ESG, we start with a fixed-price diagnostic covering energy, cost opportunities and emissions measurement and reporting. If your business is eligible for the NSW Net Zero Planning Grant, it can help co-fund the work. Applications close 30 November, so book a discovery call now to check your eligibility.