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The Australian economy is showing tentative signs of growth as shoppers return to stores and cafes

Jack Derwin
  • The Australian economy has ticked back to growth for the first time since shutdown, according to the Commonwealth Bank's Flash PMI.
  • The growth was largely attributed to the services sector as business reopen and Australians rush back to hair, beauty and massage parlours.
  • Separate spending figures indicate pent up demand is now flowing as well, with spending actually higher than this time last year.
  • Visit Business Insider Australia's homepage for more stories.

The PM might have promised a tradie-led recovery, but right now it looks like the service sector is doing the heavy lifting.

On Tuesday, the economy bounced back into expansion after a months-long contraction, according to the Commonwealth Bank's Flash PMI sector.

With a score of 50 denoting stagnation on the prior month, Australia tipped back into positive territory with a 52.6, indicating modest growth as businesses began reopening in May.

The recovery was led by the service industry, which reported growing business activity for the first time in five months. Meanwhile, manufacturing production and exports both continue to fall, albeit at slower rates.

Head of Australian economics Gareth Aird noted that while growth was still soft, he believed Australia had passed a "low point" with some encouraging signs emerging.

"Confidence has improved in both the manufacturing and services sectors and the lift in both input and output prices is welcome as it suggests we are more likely to be in a period of disinflation rather than deflation," he said in the research issued to Business Insider Australia.

That's despite companies reporting they were still reducing their workforces for the fifth month running, as they continue to operate below normal capacity.

"The further decline in employment was disappointing, but given the lagging relationship between employment and output, it is not surprising. We should see headcount lift from here," Aird said.

The view appears to be shared by Australian businesses. Taking a 12-month view, sentiment hit its highest level in nine months – long before the term COVID-19 was even coined.

It comes as Australians begin loosening the old purse strings. Separate CBA analysis shows spending last week was again on the rise. In fact, the country is actually spending more than normal, as Australians find a newfound appreciation for some businesses that were shut during March and April.

Compared to this time last year, the country is spending 13% more on personal care services like beauty, hair and massage parlours.

Meanwhile, the country is still splurging nearly 20% more on food, 24% on groceries, and 9% at cafes and restaurants. To wash it down, there's been a 19% surge in spending on alcohol – although that's been unsurprisingly concentrated at bottle shops, while pubs and clubs continue to decline.

While recreation and transport spending has followed it downward, Australians are spending 42% more on household items like furnishings and 7% more on clothes.

Is it enough to rescue the economy? Hardly, with Australia still headed for a sharp recession and unemployment continuing to rise.

But it's an indicator things are beginning to slowly turn around.