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Green shoots emerge in the Australian economy

  • June 25 2020
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Green shoots emerge in the Australian economy

By Cameron Micallef
June 25 2020

There are signs of the Australian economy bouncing back as the private sector, particularly the services sector, benefits from growing output as life returns to normal post-COVID-19, research has shown.

Green shoots emerge

Green shoots emerge in the Australian economy

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  • June 25 2020
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There are signs of the Australian economy bouncing back as the private sector, particularly the services sector, benefits from growing output as life returns to normal post-COVID-19, research has shown.

Green shoots emerge

The latest Commonwealth Bank Purchasing Manager Index (PMI) has pointed to a return to growth, although it has come from a low base. 

CBA’s 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.”

The services sector has the strongest rise in activity, growing for the first time in five months in June as operations returned to normal and demand for services increased.

However, not all sectors showed signs of improvement, with manufacturing production continuing to fall, although at a slower pace, indicating stabilisation as new orders and exports resumed.

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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. 

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

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.

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. 

“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.


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About the author

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Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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