Australia’s services sector picks up pace in July, buoyed by consumer spending

Australia’s service sector picked up pace during the month of July, buoyed by strong consumer spending that continued to drive the economic expansion of the country after a shaky election period.

The performance of services index (PSI) rose to 53.9 in July from 51.3 the previous month, data released by the Australian Industry Group (AiG) showed Wednesday. It remained well above the critical 50-point mark that separates expansion from contraction.

In addition, the new orders subindex also edged higher, rising 0.4 points to 52.2, maintaining the solid expansion seen since February this year. Mirroring the improvement in those components, capacity utilisation across the sector jumped by 4 percentage points to 77.3 percent.

Services account for more than two-thirds of Australia’s gross domestic product (GDP). This sector showed signs of stability in the second quarter after contracting earlier in the year. The sector had contracted throughout the fourth quarter as demand for non-retail services declined.

Moreover, according to latest inflation data, deflationary pressures still continue to pressurize the Australian economy, at the start of the third quarter. The Melbourne Institute’s monthly consumer inflation gauge declined 0.3 percent in July after gaining 0.6 percent the previous month.

Meanwhile, the Reserve Bank of Australia in its latest monetary policy meeting slashed interest rates for the second time this year after annual inflation weakened to just 1 percent in the second quarter. The 25 basis point cut was widely expected by market participants.