Australia’s private-sector economy is still growing but lost momentum in December, with services cooling even as manufacturing picked up slightly.

December PMI snapshot

According to the latest S&P Global Flash Australia PMI, the composite output index eased to 51.1 in December, down from 52.6 in November and marking the weakest expansion in seven months. Any reading above 50 signals growth, so the data point to a slower, not reversing, economy heading into year-end.

Within that composite, the services business activity index slipped to 51 from 52.8 month on month, highlighting a notable deceleration in Australia’s dominant services sector. By contrast, the manufacturing PMI edged up to 52.2 from 51.6, suggesting factory output is improving modestly after a more subdued period.

Demand, jobs and sentiment

New orders continued to rise but at a more “mitigated” pace than in November, with S&P Global attributing much of the slowdown to intense competition weighing on services demand. Even so, service providers increased staffing as firms responded to heavier workloads, signalling that employers still see enough pipeline to justify hiring.

S&P Global economist Jingyi Pan said it was “positive” that new orders were still expanding and that business confidence improved in December despite the softer output numbers. This suggests Australian firms, particularly in services, remain cautiously optimistic about the outlook into 2026 rather than bracing for an imminent downturn.

Cost pressures and inflation risks

One clear warning sign in the December data is a renewed build‑up in cost pressures across both manufacturing and services. Input costs accelerated, indicating businesses are facing higher bills for labour, materials and other operating expenses as the year closes.

If companies attempt to pass these higher costs on to customers, price pressures could complicate the Reserve Bank of Australia’s task of keeping inflation in check in 2026. However, with activity growth already slowing, many firms may have limited pricing power, potentially squeezing margins rather than reigniting broad-based inflation.

What it means for Australian businesses

For Australian businesses, the latest PMI report paints a picture of an economy that is still expanding but under increasing competitive and cost strain. Service-sector operators, from professional services to hospitality and retail, may need to sharpen pricing and productivity strategies as growth in new work softens.

Manufacturers, meanwhile, can take some comfort from the uptick in activity, though the broader trend over recent months has been shaped by fluctuating demand and global headwinds. Across the private sector, the combination of slower output growth, rising costs and still‑solid hiring points to a delicate balance between maintaining margins and preserving jobs as 2025 comes to a close.