The Australian S&P Global Services PMI Final for May 2025 was reported at 50.6. This is slightly higher than the preliminary estimate of 50.5 but lower than the previous month’s reading of 51.0. The Composite PMI was 50.5, down from 51.0 last month and just below the early estimate of 50.6. These numbers suggest that growth in Australia’s service sector is slowing down. This slowdown is associated with a smaller increase in new business amid worsening external conditions. Confidence among service firms has dropped to a six-month low, while manufacturers are feeling more optimistic. The labor market remains tight, with hiring still ongoing. However, easing inflation may allow for lower interest rates to encourage growth. Output price inflation has decreased to its lowest level since late 2020, and there is less charge inflation in the goods sector. This indicates that Australia’s CPI outlook may be improving. Earlier this week, the Australian S&P Global Manufacturing PMI Final for May 2025 showed a figure of 51.0, down from 51.7 in the previous month. Overall, the combined PMI readings from May suggest a slowdown, especially in the services sector. The small increase in the final Services PMI compared to the flash estimate does not hide the softness appearing in key areas. Service businesses are struggling with reduced momentum due to declining external demand, which is unlikely to improve quickly. Jackson noted that confidence among service providers has hit a six-month low, contrasting with the continued cautious optimism in manufacturing. This disparity between the sectors could influence short-term expectations for economic activity, especially since forward-looking indicators do not show consistent strength. We also observe changes below the surface. The continued decline in output price inflation is significant, now at its lowest since late 2020. This suggests that demand pressure is easing, particularly in services, which may reduce corporate pricing power. If this trend continues, it increases the likelihood that monetary authorities will focus on growth in the second half of the year, especially if trimmed CPI readings continue over several quarters. While job growth remains steady, the overall slowdown in top-line figures and cooling price data may help us evaluate risk premiums in upcoming sessions. Traders might start to reconsider their exposure based on expectations for more aggressive tightening, and instead, consider the possibility of a softer stance in late-year positions. Given the latest signals and our short-term forecasts, it makes sense to adjust expectations based on new business and confidence indicators, especially in the services sector. We also noted Patel’s earlier comments about the slight downward revision in the manufacturing PMI, which suggests that the domestic economy is not fully compensating for weak foreign orders. Current trends do not yet indicate a contraction, but the loss of momentum should encourage a flexible approach, especially in local currency pairs. In this context, it’s not a good time for strong convictions in trading; rather, it’s better to make rotational shifts that acknowledge narrowing spreads and consider where passive strategies might fall short. The dip in the composite figure aligns with our understanding from PMI internals: a gentle signal that different sectors are not functioning smoothly together.

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