Australia’s service sector maintained expansion at the end of 2025, although growth slowed to its weakest pace since May, according to the latest S&P Global PMI data. The seasonally adjusted Australia Services PMI Business Activity Index dropped to 51.1 in December from 52.8 in November, staying above the 50 mark that separates expansion from contraction. This marks a growth streak approaching two years, but with a clear loss of momentum as capacity constraints and rising costs limited output.
Despite the slowdown, demand conditions showed resilience. New business inflows grew at their fastest rate in three months, driven by stronger customer demand and an increase in client numbers late in the year. Export demand also contributed positively, with firms reporting further expansion in overseas contracts. This increase in new orders suggests that underlying demand remains supportive going into early 2026, even though headline activity weakened.
To cope with higher workloads, service providers accelerated hiring, marking the strongest job creation pace in three months. This helped reduce outstanding business for the second time in three months, indicating improving operational capacity despite near-term growth constraints.
Business sentiment improved in December, with firms becoming more optimistic about output prospects for the coming year. This optimism was backed by anticipated business development initiatives and hopes for expansionary government policies. However, confidence remains below historical averages, reflecting ongoing caution about the broader economic outlook.
Price pressures intensified in December. Input costs rose faster than in November, led by higher expenses for materials, energy, and wages. In response, firms increased output prices more rapidly, raising the possibility that inflation from the services sector could spread more broadly across the economy.
At the composite level, overall business activity growth softened as the Composite Output Index fell to 51.0 from 52.6—the slowest expansion in seven months. Nevertheless, new orders and employment growth accelerated, while confidence improved modestly.
Jingyi Pan, Economics Associate Director at S&P Global Market Intelligence, commented that the combination of softer headline growth alongside stronger new business points to continued expansion in the months ahead, though rising price pressures deserve close monitoring.
Original Source: Eamonn Sheridan of investinglive.com
