Services tipped to boost economy

AUSTRALIA’S services sector, led by tourism and education, are expected to drive the nation’s economic recovery.

HSBC chief economist Paul Bloxham yesterday said services would likely be Australia’s next driver of growth in the face of unwinding investment in the mining sector.

They would be boosted by low interest rates and the sliding Australian dollar, he said.

“Australia’s rebalancing act is underway, growth is shifting from being led by mining to being led by the non- mining sector of the economy,” Mr Bloxham said.

“As mining investment falls we are seeing signs of activity picking up in other industries,” he said, pointing to low interest rates lifting house prices which was flowing through to more residential construction.

Mr Bloxham identified industries such as tourism and education to be the next key contributors to local growth.

“There’s strong growth in tourism arrivals particularly from China, we’ve also seen … international student enrol- ments hit new highs this year,” he said.

He expected the sector to be helped by Asia’s emerging middle class, low interest rates and the falling Aussie dollar – which dropped below US75c this week for this first time since 2009.

Foreign demand for local services would also continue to be supported by free trade agreements recently signed with China, Korea and Japan, Mr Bloxham said.

The prediction comes in the wake of upbeat recent data on services sector activity, with AI Group’s PSI index edging up to 51.2 last month.

Those figures showed three of the five activity sub-indexes were in expansion territory led by sales gains and new orders.

Mr Bloxham urged politicians to focus on infrastructure investment that could help lift services-driven growth.

“What would help is a focus on tax and regulatory reform and building infrastructure to improve local competitiveness and support a services-driven upswing in growth,” he said.