Low interest rates and a falling Australian dollar are failing to drive expansion in manufacturing activity, which has contracted for three months in a row.

The Australian Industry Group’s Performance of Manufacturing Index fell 0.9 points to 46.7 in January, seasonally adjusted – below the 50 level that separates expansion from contraction.

It was the third consecutive month of contraction, Ai Group chief executive Innes Willox said.

“2014 looks to be another challenging year for many Australian manufacturers, although a handful of areas are showing some positive signs of growth,” he said.

“Comments from manufacturers indicate that a lower Australian dollar has started to benefit some manufacturing businesses but exports remain fragile.”

Growth was recorded by four sub-sectors: food, drinks and tobacco; wood and paper products; petrol, coal, chemicals and rubber; and non-metallic mineral products, which includes building materials like glass, bricks and cement, and has grown in response to the lift in residential construction.

“But our other large manufacturing sectors continue to struggle, despite the lower dollar and low interest rates,” Mr Willox said.

“Muted local demand and a difficult export market means they are in no position to assume the lead in generating alternative sources of growth as the mining investment boom fades through 2014.”