Australia’s services sector has contracted for the 16th consecutive month, as businesses grapple with poor consumer sentiment and political uncertainty.
The Australian Industry Group/Commonwealth Bank Australian Performance of Services Index fell to a 13-month low of 40.6 in May – its second lowest reading since the GFC.
Readings below 50 represent a contraction in business activity. Activity in retail trade and hospitality sub-sectors fell to their lowest levels so far this year, according to the report.
The fall came despite government attempts to stimulate activity with low interest rates and a recent drop in exchange rates.
Commonwealth Bank senior economist John Peters said report findings supported expectations of a “tame QII CPI” in July and a 0.25% cut to the Reserve Bank’s official cash rate, to 2.5%, in August.
“This rate cut plus other recent cuts working their way through the economy, together with the 8% slide in the Australian dollar since early May, should help boost activity and confidence in the household and business sectors,” he said.
AIG CEO Innes Willox said the report, which is based on feedback from about 150 Australian businesses, lent “disturbing support to the view that the broader economy is further slowing in the face of poor sentient in both the household and business sectors”.
“Alternative sources of growth are now needed to make up for the loss of momentum as mining-related activity is set to peak and as commodity pries retreat further,” he said.
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