Australian business activity plunges at fastest rate on record

Early data has signalled a renewed fall in business activity in February across both the services and manufacturing sectors in Australia, with the latest ‘flash’ CBA Composite Purchasing Managers Index (PMI) underlining the impact of the bushfires and coranvirus on key parts of the economy.

Details released show that business activity in the services sector fell for the third time in the past four months and at the quickest rate on record in the index’s four year history. Business conditions across Australia’s manufacturing sector also deteriorated for the fourth successive month, albeit only slightly.

“The February ‘flash’ results imply a contraction in private demand,” said CBA senior economist, Gareth Aird. “Whilst this is clearly a disappointing result, it is not altogether surprising given the two negative shocks that have hit the Australian economy - the bushfires and the coronavirus.”

In February, the Flash Composite Output Index was down to 48.3 from 50.2. Readings below 50.0 signalling a deterioration in business activity on the previous month.

“Our main concern is that these events have hit the global and local economies at a time when domestic demand was already soft,” noted Aird. “The level of both the services and manufacturing PMIs highlights the need for more policy stimulus. With monetary policy doing most of the heavy lifting, an easing in fiscal policy continues to look the most appropriate response to support aggregate demand.”

The CBA ‘flash’ PMI is based on around 85 per cent of final survey responses and final indices for February published approximately one week later.