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Service sector activity to surge into 2017

AAP logoAAP 4/01/2017

Australia's service sector activity is set to surge into the new year after finishing 2016 near a decade high.

The Australian Industry Group's Performance of Services Index (PSI) rose 6.6 points to 57.7 points in December, rising well above the 50-point level signifying expansion.

That's the highest level the index has reached since May 2007.

Ai Group said a number of survey respondents said conditions were more positive in December with customer demand strengthening, increased orders from the mining sector, a lower value for the Australian dollar; interest rates remaining stable and good agricultural harvests.

"Overall, there was a sense of increased confidence from respondents across many services sub-sectors," Ai Group said.

Ai Group chief executive Innes Willox said the surge came after a gradual recovery in activity in October and November.

"Sales and new orders were particularly strong across many services sub-sectors pointing to the likelihood of a strong start to the new year," he said.

Six of the nine service sub-sectors expanded in the month, led by personal and recreational services, where activity rose to its highest level since March 2012.

The finance and insurance service sub-sector picked up rapidly, property and business services grew and health and community service activity also expanded, but at a slower rates.

However, activity wound down in the accommodation, cafes and restaurants; the transport and storage and the communications sub-sectors.

Meanwhile, both input and selling prices continued to rise, but wages growth moderated in the month.

Mr Willox said the business environment last year highlighted the vulnerability and fragility of the economy during the transition away from mining investment, through housing investment, towards more broader and more sustainable growth.

"The services sectors provide the bulk of Australia's economic activity and employment opportunities, so it is crucial to us all that they perform well," he said.

"Challenges and risks abound in 2017 in Australia and globally, so a solid and supportive policy environment is becoming more urgent than ever."

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