Service sector shrinks, shares fall again: Economy roundup

As news breaks that Australia has suffered its first quarter of negative GDP growth in eight years, there is more bad news from the services sector, which saw its 11th consecutive fall in activity in March.

 

The Australian Industry Group-Commonwealth Bank performance of services index dropped 8.8 index points during February to just 32.2 points. It is 11th consecutive month where the figure has dropped below the 50 point level separation expansion from contraction.

The accompanying report found that out of the nine sectors measured, only communications services recorded expansion in activity. The largest decreases were found in the wholesale trade and personal and recreational services sectors.

“Firms also pointed to weak tourist numbers, market uncertainty, and an unwillingness to invest as factors impeding services activity,” the report said. Worryingly, sales, declines in new orders, and inventories of finished goods are also down for the 10th consecutive month.

Shares lower

The Australian sharemarket has opened 1.7% lower after negative leads from stocks on both Wall Street and European markets.

The benchmark S&P/ASX200 index was down 58.9 points or 1.83% to 3160.3 at 12.07 AESDT.

The Australian dollar also rose to US64 cents after the Reserve Bank’s decision yesterday to keep the official interest rate at 3.25%.

Commonwealth Bank shares have dropped 2.5% to $27.57, while ANZ fell 2.2% to $12.68. Wesfarmers shares fell 3.7% to $16.97, while Westpac suffered a 1.2% decline to $15.88.

Overseas, European stocks closed to a record low with the FTSEurofirst 300 closing down 1.9% to 669.64 points.

On Wall Street, the S&P500 index slipped below 700 for the first time since October 1996 as negative sentiment grew about the amount of funds needed to sustain the troubled financial system.

The Dow Jones Industrial Average dropped 37.27 points or 0.55% to 6727.02. Oil prices also jumped 4% after speculation grew that OPEC will make another cut to its production output.

Obama worried

President Barack Obama echoed the pessimism on Wall Street, following new data showing US auto sales declined 40% in February to a three-decade low, marking a 15th consecutive month of retraction in the industry.

“The economy’s performance in the last quarter of 2008 was the worst in over 25 years. And frankly the first quarter of this year holds out little promise for better returns,” Obama said in a speech.

Commodities to struggle

Meanwhile, mining giant Rio Tinto says 2009 will be a difficult year for both prices and volumes of key commodities, according to its chief economist.

Chief economist Vivek Tulpule says a recovery is possible in 2010, but the risk of a longer downturn is still high, Reuters reports.

He says that 2009 “will be a very rough year for both prices and volumes and probably also for construction. A lot of people I talk to in the mining industry are suffering a crisis of confidence, they are putting a lot of projects on hold. Our view is that it will be a slow year or two.”

The news comes as new figures from the ABARE show the value of Australian exports of iron ore and metallurgical coal are set to decline. 

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