Australia's Service Sector Is Still Contracting

Getty/Denis Doyle

Just like the honeymoon that never was for the Abbott Government, the “Green shoots that appeared following the federal election” have withered and died, according to Innes Willox, chief executive of the Australian Industry Group (AiG).

Willox make the comment in a press release accompanying the December Performance of Services Index (PSI) that showed the services sector in December retreating “from the brink of recovery”.

For the 23rd straight month the services sector, as measured by the AiG PSI, was below the 50 expansion contraction level, finishing 2013 down 2.8 points to 46.1.

Most disturbing was the fact that the employment sub-index fell to 47.7 while new orders dropped by 3.6 points to just 43. Sales held up on November’s levels at 47.7, but that is still in the contraction zone.

For all the focus on mining and mining investment, Australia is a service-based economy and Willox noted that:

Continuing weakness in the important services sector underlines the fragility of the domestic economy at a time when a lift in non-mining related activity is needed to meet the challenge of rebalancing in the wake of the mining investment boom.

This is a really poor result given that the index looked on the brink of expansion and shows just how vulnerable the Australian economy remains, particularly if the if the Services sector doesn’t pick up in the months ahead.

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