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Australian Business Activity Stabilizes in June, But Weak Confidence, Inflationary Pressures Continue to Weigh

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Australian Business Activity Stabilizes in June, But Weak Confidence, Inflationary Pressures Continue to Weigh

Australia's manufacturing sector accelerated its growth in June, according to preliminary estimates, even as new orders continued on a downward trajectory amid high market uncertainty.

The S&P Global Flash Australia Manufacturing Purchasing Managers' Index clocked in at 51.2 for June, up from a reading of 50.7 in May, while the Flash Services PMI Business Activity Index improved to 49.9 from 48.7 in May but remained below the 50 mark that separates growth from contraction, the index provider said Tuesday.

The Flash Composite PMI Output Index, which combines data from both the manufacturing and services industries, rose to 49.8 in June from 48.7 in the previous month, pointing to a near-stabilization of business activity.

The latest readings come as business confidence in Australia declined to the lowest since March 2020. Excluding that pandemic-affected month, sentiment was at its weakest level since S&P began collecting the data just over a decade ago.

Manufacturing production continued to fall with the Flash Manufacturing PMI Output Index edging lower to 48.9 from 49 in May. New orders have declined continuously since March, and new export orders were also lower at the end of the second quarter.

Following a decline in May, the country saw a renewed increase in employment in June, with modest gains in staffing levels in both the manufacturing and service sectors. A larger workforce amid falling new orders meant that businesses were able to deplete backlogs again, S&P Global said.

Although inflationary pressures remain relatively elevated as input costs surged in June, the rate of inflation eased for the second straight month and was at the lowest level since March. This trend could continue as oil prices drop following a peace deal between the US and Iran, said Andrew Harker, economics director at S&P Global Market Intelligence.

"Any improvement in shipping flows through the Strait of Hormuz would also help to alleviate the severe supply-chain disruption still impacting manufacturers," Harker said, adding that the latest PMI data paints "a mixed picture" for Australian businesses.

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