The manufacturing sectors across Australia and New Zealand pursued technology-driven productivity improvement throughout 2025 even while facing sluggish demand conditions, creating an interesting dynamic of capital investment during a period of modest output growth.

Australian manufacturing production increased just 0.8% in volume terms during 2025, according to preliminary ABS data. This modest growth masks significant variation across sub-sectors, with food manufacturing growing 2.1% while machinery and equipment manufacturing declined 1.4%.

New Zealand manufacturing output was essentially flat for 2025, growing 0.2% in volume terms. Similar to Australia, the aggregate figure obscures sector-specific variation. Meat and dairy processing grew modestly while wood product manufacturing contracted.

Despite the subdued output growth, capital expenditure by manufacturers increased approximately 4% in both countries during 2025. This investment went primarily toward automation equipment, production optimisation systems, and quality improvement rather than capacity expansion. Manufacturers are investing to reduce costs and improve reliability rather than to produce more.

Robotics adoption accelerated in both countries during 2025, particularly in food processing, pharmaceutical manufacturing, and automotive component production. The business case for robotics improved as labour costs increased and robot costs declined. Additionally, pandemic-era workforce disruptions demonstrated the vulnerability of labour-dependent production systems.

Advanced manufacturing techniques including additive manufacturing (3D printing) found expanding applications during 2025. Aerospace component manufacturers increased use of metal 3D printing for complex parts. Medical device makers adopted the technology for customised implants. The technology moved from prototyping into production applications.

However, Australia and New Zealand manufacturers still lag global leaders in advanced manufacturing adoption. International benchmarking suggests both countries have significant potential to increase productivity through better utilisation of available technologies. The challenge isn’t technology availability—it’s implementation capability and change management.

Supply chain resilience became a more prominent consideration in manufacturing strategy during 2025 after the disruptions of 2020-2023. Some companies reshored production of critical components or diversified supplier bases to reduce dependence on single sources. These decisions prioritised reliability over pure cost minimisation.

Labour shortages continued affecting manufacturing operations throughout 2025. Skilled trades including machinists, toolmakers, and industrial electricians remained in high demand and short supply. This contributed to the automation investment trend as companies sought to reduce labour dependency.

Wage growth in manufacturing averaged 4.2% in Australia and 4.5% in New Zealand during 2025, slightly above economy-wide averages. Competition for skilled workers drove pay increases that manufacturers then attempted to offset through productivity improvements.

Energy costs remained a significant challenge for energy-intensive manufacturers. While electricity prices moderated from 2023 peaks, they remained well above historical averages. Some manufacturers invested in on-site renewable generation to reduce exposure to grid electricity prices.

Input costs broadly stabilised during 2025 after the rapid escalation of 2021-2023. Steel prices declined modestly from peaks while plastic resin costs remained elevated. Chemical feedstock prices varied by commodity but generally didn’t escalate further.

Manufacturers’ profit margins remained compressed in many sectors despite cost stabilisation. Competitive pressures limited ability to pass through cost increases fully. Manufacturing operating profit margins averaged around 6.2% in Australia, below the long-term average of 7.5%.

Export performance varied significantly by manufacturing sector. Food and beverage manufacturers generally found solid export demand, particularly in Asian markets. Advanced manufacturing exporters in niche categories performed well. However, commodity manufacturing exports faced intense international competition.

Government support programs for manufacturing continued in both countries with varying effectiveness. Australia’s Modern Manufacturing Initiative funded various projects though early results are mixed. New Zealand’s regional business partner program supported manufacturing development in specific locations.

The circular economy concept gained more practical application in manufacturing during 2025. Product take-back schemes, remanufacturing programs, and design-for-disassembly practices all expanded. Some of this was driven by genuine environmental commitment, some by regulatory requirements, and some by economic opportunities in secondary materials.

Pharmaceutical manufacturing capacity expanded in both countries during 2025 as governments supported domestic production capability following pandemic supply chain lessons. Several new facilities commenced construction, though most won’t be operational until 2027-2028.

Defence-related manufacturing received increased attention and investment in 2025, particularly in Australia. AUKUS-related manufacturing requirements are creating opportunities for companies capable of meeting defence industry standards. The timelines are long and requirements demanding, but contracts can be substantial.

Environmental compliance costs increased for manufacturers during 2025 as various regulations tightened. Emissions reporting requirements, waste management standards, and chemical handling protocols all created additional costs. For smaller manufacturers, the compliance burden is proportionally larger.

Industry 4.0 concepts around connected factories and data-driven production gained traction beyond early adopter companies. Manufacturers implemented sensors and data collection systems to understand production variability and identify improvement opportunities. However, the full Industry 4.0 vision of autonomous factories remains distant for most operations.

Additive manufacturing service bureaus emerged as a viable business model in both countries during 2025. Rather than manufacturers investing in their own 3D printing equipment, they can access capabilities through service providers. This allows broader adoption without requiring capital investment from individual manufacturers.

Customisation and personalisation capabilities increasingly differentiate manufacturers in consumer-facing categories. Companies that can efficiently produce customised products rather than just standard variants are finding competitive advantages. This requires flexible manufacturing systems that traditional high-volume production lines can’t easily accommodate.

Looking at specific manufacturing sub-sectors, food processing remained the largest manufacturing employer in both countries. The sector faces ongoing challenges around seasonality, perishability, and quality consistency, but demand fundamentals are solid given growing populations and export opportunities.

Beverage manufacturing, including craft breweries and boutique producers, continued growing in both countries. The premiumisation trend in beverages supports small-scale producers focusing on quality and differentiation rather than competing on volume and cost.

Metal fabrication businesses reported mixed conditions in 2025. Those serving construction markets struggled with reduced building activity. Those producing components for mining or agriculture sectors performed better. The sector’s performance varied primarily by end-market exposure.

Machinery and equipment manufacturing faced challenges from import competition in both countries. Lower-cost imports, particularly from Asia, create persistent margin pressure. Manufacturers competing in this space need clear differentiation through quality, service, or customisation that offsets price disadvantages.

The outlook for 2026 suggests continued modest manufacturing output growth with ongoing emphasis on productivity improvement. Demand conditions don’t support aggressive capacity expansion, but companies will continue investing in efficiency and capability improvement.

What 2025 demonstrated is that manufacturing in high-cost developed economies like Australia and New Zealand must compete on sophistication rather than cost. The companies succeeding are those offering capabilities that lower-cost producers can’t easily replicate—quality, reliability, customisation, or speed. Manufacturers pursuing cost-based commodity competition continue struggling.