Summary:
- Services PMI falls to 46.3, back into contraction after 26 months
- Composite PMI fell to 46.6 in March, down from 52.4 in February
- Sharp drop from 52.8, weakest since November 2023
- New orders decline, with exports hit by Middle East conflict
- Broad-based weakness, led by finance & insurance
- Input costs surge to multi-year highs on fuel prices
- Output price inflation accelerates sharply
- Employment continues to grow despite activity downturn
- Business confidence falls to lowest in over two years
Australia’s services sector slipped back into contraction in March, as escalating geopolitical tensions and rising cost pressures weighed on activity and demand.
The S&P Global Australia Services PMI Business Activity Index fell sharply to 46.3 from 52.8 in February, dropping below the 50-mark that separates expansion from contraction for the first time in over two years. The decline was the steepest since late 2023 and signals a notable loss of momentum across the sector.
The downturn was driven primarily by a renewed fall in new business, with firms citing weaker demand and disruption linked to the war in the Middle East. Export orders were particularly affected, declining at a solid pace and ending a seven-month run of growth. International uncertainty and softer external demand appear to be feeding through more directly into domestic activity.
Sector-level data showed broad-based weakness, with four of five categories reporting falling output. Finance and insurance recorded the sharpest decline, while consumer services was the only segment to see an increase in activity.
At the same time, inflationary pressures intensified significantly. Higher fuel costs were widely reported, pushing input costs up at the fastest pace in over three years. This fed through into output prices, with firms raising charges at the quickest rate in more than two-and-a-half years, highlighting the growing pass-through from energy-driven cost pressures.
Despite the downturn in activity, employment remained a relative bright spot. Firms continued to expand staffing levels at a solid pace, extending the current hiring streak and suggesting businesses remain cautiously optimistic about the medium-term outlook.
However, confidence weakened notably, falling to its lowest level in more than two years. Companies pointed to uncertainty around the duration of the Middle East conflict, alongside broader economic headwinds and persistent cost-of-living pressures.
The broader private sector picture also deteriorated. The Composite PMI fell into contraction territory, reflecting declines in both services activity and manufacturing output. The data point to a softening in economic momentum at the end of Q1, even as inflation pressures remain elevated—presenting a challenging backdrop for policymakers.
This article was written by Eamonn Sheridan at investinglive.com.
