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Private sector sees green shoots of growth

There are signs of a return to growth in Australia’s private sector output, particularly the services sector, as coronavirus restrictions are loosened, according to new research.

The latest Commonwealth Bank ‘Flash’ Purchasing Manager Index (PMI) has pointed to a return to growth of private sector output in June.

The increase was particularly evident on the services sector, which saw a rise in activity for the first time in five months, while manufacturing production continued to fall, although at a much slower pace.

The return to growth in June has come on the back of easing of social distancing measures to curtail the spread of the coronavirus, which consequently saw a resumption of operations at many firms.

The headline PMI index in June was 52.6, up significantly from 28.1 in May. The Flash Services Business Activity Index was at 53.2, up from 26.9 in May, while the Flash Manufacturing PMI was at 49.8, up from 44.0 in May.

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Readings above 50.0 indicate an improvement in business activity on the previous month, while readings below 50.0 show a decline.

CBA head of Australian economics, Gareth Aird said: “The June results indicate we are now past the lowest point in economic activity. Overall conditions are still very soft, but there were some encouraging signs about further improvements still to come.”

While services business activity increased in June as operations resumed and customer demand increased, the manufacturing sector saw smaller reductions in output, indicating a stabilisation as new orders and exports were recorded.

New business in the services sector also rose, but only marginally as the sector continues to deal with the ongoing impact of the coronavirus pandemic.

Employment decreased for the fifth consecutive month, but the rate of job cuts was the weakest in this sequence. Meanwhile, both input costs and output prices rose for the first time in three months.

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“The further decline in employment was disappointing, but given the lagging relationship between employment and output, it is not surprising,” Mr Aird said.

“We should see headcount lift from here.”

The rate of decline in employment in the manufacturing sector remained steep, as firms operated below capacity.

“Considerable disruption to supply chains remained, while the rate of input cost inflation quickened to the sharpest since May 2018. Selling prices were raised, following a fall in May,” the index report said.

Confidence over the 12-month outlook improved to a 16-month high in the manufacturing sector, with firms expecting a return to normality over the coming year.

“Confidence has improved in both the manufacturing and services sectors,” Mr Aird said.

“And the lift in both input and output prices is welcome as it suggests we are more likely to be in a period of disinflation rather than deflation.”

The general increase in confidence in the 12-month outlook was attributed to optimism that the worst of the disruption from the coronavirus pandemic has passed, and that operating conditions will gradually return to normal.

Sentiment was the highest in nine months, with optimism increasing across both the services and manufacturing sectors.

[Related: Job losses soar beyond expectations]

Private sector sees green shoots of growth
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Malavika Santhebennur

Malavika Santhebennur is the features editor on the mortgages titles at Momentum Media.

Before joining the team in 2019, Malavika held roles with Money Management and Benchmark Media. She has been writing about financial services for the past six years.

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