RTTNews - Australia's service sector activity expanded for the first time in 15 months in June, on the back of rising consumer confidence, low interest rates and the government's stimulus package, the latest survey from the Australia Industry Group and the Commonwealth Bank said Friday.

The seasonally adjusted Performance of Services Index rose 10.3 points from the previous month to 50.2 in June, marginally above the threshold level of 50. A reading above 50 indicates an expansion in the services sector, while a reading below 50 signals a contraction.

In June, most of the sub indicators showed an improvement over the previous month. The sales index expanded for the first time since May last year, with the index rising 16.1 points to 55.2. Similarly, new orders expanded for the first time in 15 months, the index climbing 16.6 points to 51.5. Moreover, the capacity utilization improved to 74.7% from 72.2% in May.

The return to growth in sales and new orders, albeit at a modest pace, is particularly encouraging and is a clear and positive sign that the sector is responding to improvements in consumer and home buyer confidence, Heather Ridout, Chief Executive of the AiG said.

Meanwhile, employment continued to contract, although at a slower pace, with the index moving up 2.5 points to 48.5. Inventories too continued to contract, for the 13th consecutive month, but the index was up 5.2 points to 46.1.

The supplier deliveries index contracted a slower pace, the index rose 6.7 points to 45.3. The increase in input costs picked up in June, and the index increased 4.3 points to 62.9. However, selling prices declined for the fourth consecutive month, with the index falling 0.3 points to 44.4.

The AiG said the June Australian PSI was further encouraging news on top of the recent strong retail trade figures for May. Retail sales rose a seasonally adjusted 1% in May, faster than a 0.3% increase in the preceding month.

Similarly, other positive news also highlighted that the country was moving away from a recession. After the positive QI GDP number, the rebound in the June Australian PSI lines up with a string of relatively positive economic data, which have hit the deck in recent weeks, which suggest that Australia's economic downturn is not going to be as grim and debilitating as those in the G7 economies and fellow G20 economies, Commonwealth Bank Senior Economist, John Peters noted.

In the first quarter, the country's GDP rose a seasonally adjusted 0.4%, after declining 0.6% in the fourth quarter, data released by the Australian Bureau of Statistics showed. Moreover, Peters said a modest upturn is likely late this year.

Adding to the string of positive news, the International Monetary Fund raised the economic outlook for the country, expecting the economy to now shrink only 0.5% this year compared to a 1.4% drop expected earlier. Moreover, the lender forecasts the economy to grow 1.5% next year, faster than its earlier forecast of 0.6% growth.

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