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Interest rates, petrol prices hit services sector
2008-05-27 10:51
  From:www.news.com.au    Article type:Reproduced

HIGH interest rates and the soaring cost of fuel caused the Australian services industry to contract in April, a survey says.

The Australian Industry Group/Commonwealth Bank performance of services index dropped 7.6 index points in April to 47.3 points.

This puts the index below the key 50 level which separates expansion from contraction.

Sales, new orders, and deliveries dropped into contraction in April.

Activity fell sharply in retail trade, finance and insurance, and transport and storage.

Seven sectors recorded a decline in the month.

"The front-line sectors of retail trade and finance and insurance in particular are bearing the full brunt of the impact and uncertainty created by interest rate rises and fuel price increases," Australian Industry Group chief executive Heather Ridout said.

Commonwealth Bank chief economist Michael Blythe said this month's fall in the PSI was "a timely reminder of how quickly economies can change direction".

"The Australian economy still has many positive attributes," Mr Blythe said.

"But the combination of rising interest rates, high petrol prices, volatile financial markets and the accompanying dent in consumer and business confidence is starting to bite."

Slowing growth in house prices had also led to less construction activity and lower demand from property, business and financial services, Mrs Ridout said.

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