Australia Services Activity Rebounds, but Demand Weakness Clouds Outlook
Synopsis
The services sector returned to growth in June as businesses increased staffing and activity levels, although declining new orders raised concerns about the sustainability of the rebound.
Australia services PMI rebounds were the standout feature of the private sector business survey in June, but the latest figures also confirmed the recovery was driven more by hiring than by customer demand.
The S&P Global Australia Services PMI, produced by S&P Global Market Intelligence in partnership with Judo Bank, in June was 50.5, up from 48.7 in May and above the 50-point level that signalled contraction. The final figure was also revised higher from the flash estimate of 49.9, reflecting business activity is stronger than initially reported.
The improvement was driven by service providers adding jobs for the 17th consecutive month in the last 18 months which enabled companies to boost production and cut back on outstanding work.
But the survey indicated that demand conditions were still weak, with new business falling for a fourth month in a row, marking the longest stretch of falling order inflows since the end of 2023.
Hiring Supports Growth While Demand Stays Soft
Australia's biggest industry showed mixed performance in the June survey. Activity levels were seen to be higher than in the businesses but simultaneously, many reported that customers were still hesitant to place new orders.
The demand for exports again declined, driven by drier conditions on the European and other markets identified by respondents and uncertainty due to geopolitical changes that could impact international trade.
In addition, business confidence weakened, hitting its lowest level since November 2023. Factors putting pressure on customers' spending decisions and future expectations included continuing economic uncertainty, and the upcoming changes as a result of the Federal Budget and tax settings, according to some firms.
Despite rising fuel and transport costs, inflation of the inputs increased at a 2.3 percent annual rate, the smallest since the second month of last year. Companies also noted sluggish increases in prices they charged customers, indicating competition remained a constraint on their ability to increase prices.
Services Sector Remains Central to Australia's Economy
The Australia services PMI rebound reading is significant since service makes up approximately 70% of Australia's gross domestic product and is home to the majority of Australia's employees. The monthly PMI survey is one of the first indicators followed by businesses ahead of the official economic data.
Services PMI for June was also negative relative to manufacturing, which continued in contraction, bringing the overall Composite PMI out to 51.6, a sign of moderate growth in the private sector of Australia's economy.
The increase in jobs helped firms to catch up on existing workloads, according to Andrew Harker, Economics Director at S&P Global Market Intelligence. He said a continued recovery would probably need more demand as further drops in new orders could throttle down future expansion.
The financial markets and businesses are getting another layer of expectation about the policy stance of the Reserve Bank of Australia with the latest survey.
The softness in demand and low business confidence suggest parts of the services economy remain in a cautious operating environment, running counter to the central bank's inflation target, but easing cost pressures would make a contribution to that target.
Source: Finimize
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Pooja Malik is a business journalist with over six years of experience covering startups, entrepreneurship, and emerging trends. She has previously worked with leading media platforms such as YourStory Media and BW BusinessWorld, where she reported on business, policy, and market developments. Currently, she serves as Editor at The Inspirepreneur Magazine, where she writes and edits stories across business, lifestyle, and travel, with a focus on clarity, accuracy, and reader relevance.
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