Interpac Business and Migration Solutions Melbourne Australia

(July 5, 2010)

ACTIVITY in Australia's services sector contracted in June, adding to a widening view that the economy has cooled off noticeably.

The Performance of Services Index, issued today, remained below the 50 point level which separates expansion from contraction for the second month in a row.

But the rate of contraction eased, with the index rising 1.3 points to 48.8.

Many consumer-based sub sectors contracted in June, including retail trade, which has not had an expansion in activity for eight months, the report by the Australian Industry Group and the Commonwealth Bank of Australia said.

Despite the weaker conditions, employment in the services sector grew in June, it said.

"The services sector as a whole has had very little to cheer about for well over six months. It has struggled under the impact of successive interest rate rises and the phase-down of fiscal stimulus," AIG chief executive Heather Ridout said in a statement.

The policy making board of the RBA meets tomorrow, with interest rates expected to be left on hold at 4.5 per cent. The RBA has raised rates six times since October 2009.

"The performance of the sector reinforces concerns that despite some predictions to the contrary, very important segments of the economy are stuck in the slow lane," Ms Ridout said.

"The disappointing fall in new orders suggests there is little prospect of acceleration over the next few months. Given this environment and the growing global uncertainty, we would expect that interest rates will remain on hold."

(Source: the Australian)