Business activity in Australia accelerated significantly at the end of the first quarter of 2025. This growth was primarily driven by improved performance in the manufacturing and services sectors. This expansion in output was primarily driven by higher new business growth, despite lower export orders. At the same time, companies saw a rise in backlogs for the first time since mid-2022, even as employment levels rose significantly. On the price front, cost pressures on Australian businesses increased in March. However, firms chose to bear some of these costs, given waning optimism about economic activity over the next 12 months. The PMI registered 51.3 in March, up from 50.6 in February.
The acceleration in manufacturing output and service sector activity in March contributed to this increase. Manufacturing recorded its fastest growth in nearly two and a half years, supporting overall business activity. The acceleration in new business also drove activity across various sectors. Expansion rates in both the manufacturing and services sectors rose, reaching their highest levels in 28 and five months, respectively. Survey respondents indicated that improved economic conditions and successful business development efforts contributed to increased demand for Australian goods and services in March.
However, the increase in new sales remained limited to the domestic market, while new business in exports declined for the sixth time in seven months, albeit slightly. Both sectors experienced a decline in exports, with rising costs, weak external economic conditions, and unstable weather events being the primary reasons. This survey provides a comprehensive and accurate picture of future economic trends.
This clearly impacted input costs at the end of the first quarter
On the other hand, employment levels in the Australian private sector rose for the third consecutive month, driven by a continued increase in new business. Job creation was particularly strong in the services sector, which recorded its highest growth rate since June 2022, while the manufacturing sector also saw renewed employment growth, albeit at a faster rate than at any time in two years. Despite increased workforce capacity, backlogs rose for the first time in 33 months, albeit only marginally.
Improving demand had a clear impact on input costs at the end of the first quarter. Overall input cost inflation reached a seven-month high, amid severe pressures across both sectors. Survey respondents cited rising costs for raw materials, transportation, and wages as the most significant factors, with firms also impacted by the depreciation of the local currency.
Despite rising input costs, output price inflation fell to a four-month low in March. Firms were cautious about passing on full production cost increases to customers, seeking to maintain competitiveness in both domestic and international markets.
Concerns about increased competition weighed on business optimism, reflected in a decline in the future output index. Optimism among Australian businesses fell to its lowest level since last September, as confidence among both goods producers and service providers declined. Respondents also indicated that uncertainty about the sales outlook could negatively impact future performance, particularly in light of global trade tensions. Despite these positive indicators, Australian businesses are becoming less optimistic about business activity growth in the coming months.
Australian Private Sector Growth at the End of the First Quarter of 2025
Commenting on the flash PMI data, Jingyi Pan, Associate Director of Economics at S&P Global Market Intelligence, said: “The flash PMI data for Australia showed a marked improvement in Australian private sector growth at the end of the first quarter of 2025. Although growth was moderate, it accelerated to its fastest pace in seven months, largely supported by expansions in the manufacturing and services sectors.
Export demand declined due to adverse weather conditions and weak external economic conditions, but the strong increase in domestic demand more than offset this drop. Many indicated that companies adopted price rigidities to maintain competitiveness, which partly contributed to the increase in new orders. Many also indicated that uncertainty over tariffs could continue to hamper output growth over the next year, despite the recent acceleration in activity growth.” Leading Indicator of Economic Health:
Experts consider this indicator one of the primary tools for measuring a country’s economic health, as it reacts quickly to changes in market conditions. Purchasing managers, who oversee companies’ purchasing operations, have an accurate and up-to-date view of the economic situation, aligned with companies’ strategies and future visions. This group of managers is believed to have up-to-date information about the state of the economy, given their direct interaction with the market, customers, and suppliers.
This indicator comes from a survey of approximately 400 purchasing managers. The survey asks participants to assess the overall state of economic conditions based on a set of important criteria. These criteria include employment, production, new orders, prices, supplier deliveries, and inventories.
