Further Signs Australian Economy Is Struggling

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By Chris Shaw

With some economists predicting Australia’s GDP may have actually contracted in the March quarter there is further evidence of the economy slowing from the Australian Industry Group/Commonwealth Bank Performance of Services Index, which finished May below the 50.0 level that signals the difference between expansion and contraction.

The Index closed the month at a reading of 49.7 and while this was up 2.4 points from April Commonwealth Bank senior economist John Peters notes the reading nevertheless confirms both businesses and consumers are responding to the recent rate hikes, higher personal debt levels and higher fuel prices by moderating their level of demand.

Australian Industry Group chief executive Heather Rideout pointed out while the pace of the decline is slowing there continues to be a softening in the level of activity in the economy, with higher fuel prices in particular acting as an additional tax on households.

Only four sectors -accommodation, cafes and restaurants, finance and insurance, property and business services and personal and recreation services- posted gains for the month compared to six in April, while the wholesale and retail trade and transport and storage sectors posted further weak results.

Input cost increases grew at their fastest rate since the survey began and this is putting pressure on service sector firms, the survey showing only Queensland, Victoria and South Australia were able to register growth in services for the month.

Sales showed some signs of improvement as on an unadjusted basis five sectors posted higher sales compared to only two in April, with much of the improvement centred in the business-related sectors such as finance and insurance and communications. Conditions remain tight in the services sector as capacity utilisation edged up to 78.1% from 76.4% previously.

While new orders contracted for the second month in a row three sectors recorded gains compared to two in April, while employment also rose in three sectors but this was down from six sectors the previous month. Stocks remained broadly steady for the month, while only two sectors recorded gains in supplier deliveries for the month, down from five in April.

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