Summary:
Australia Services PMI Business Activity Index eased to 51.1 in December from 52.8 in November
Services activity expanded for a near two-year stretch
Growth slowed to weakest pace since May
New business and export demand strengthened
Hiring accelerated, reducing outstanding workloads
Input and output price pressures intensified
Composite Output Index slipped to 51.0 from 52.6
Australia’s service sector continued to expand at the end of 2025, though momentum softened as capacity constraints and rising costs weighed on activity, according to the latest PMI data from S&P Global. While business activity growth slowed to its weakest pace since May, demand conditions remained resilient, supported by a solid rise in new business and continued strength in export-related services.
The seasonally adjusted Australia Services PMI Business Activity Index eased to 51.1 in December from 52.8 in November, remaining above the 50 threshold that separates expansion from contraction. The reading extended the current growth run to nearly two years, but confirmed a loss of momentum into year-end. Survey respondents cited capacity constraints as a key factor limiting output growth, even as demand conditions improved.
New business inflows rose at their fastest pace in three months, driven by stronger customer demand and an increase in client numbers late in the year. Export demand also contributed, with firms reporting another expansion in new work from overseas markets. The pickup in new orders suggests underlying demand remains supportive heading into early 2026, despite softer headline activity readings.
To meet rising workloads, service providers increased staffing levels at a solid pace. The rate of job creation was the strongest in three months, allowing firms to reduce outstanding business for the second time in three months. That combination points to improving operational capacity, even as growth remains constrained in the near term.
Business sentiment improved in December, with firms reporting greater optimism around output prospects for the year ahead. Expectations were supported by anticipated business development initiatives and hopes for expansionary government policies. That said, confidence levels remained below historical averages, reflecting ongoing caution around the broader economic outlook.
Price pressures were a key feature of the December survey. Input costs rose at a faster pace than in November, driven by higher material, energy and wage expenses. Firms responded by lifting output charges more quickly, raising the risk of services-led inflation pressures feeding into the broader economy.
At the composite level, overall business activity growth also softened. The Composite Output Index slipped to 51.0 from 52.6, marking the slowest expansion in seven months. However, new orders and employment growth accelerated, while confidence improved modestly.
According to Jingyi Pan, Economics Associate Director at S&P Global Market Intelligence, the combination of softer activity growth but stronger new business points to continued expansion in coming months, though rising price pressures warrant close monitoring.
