Australia’s flash composite PMI fell to 47.8 in May from 50.4 in April, signalling the second contraction in three months, as new orders dropped at the fastest pace since September 2021, per S&P Global.
Summary:
S&P Global Flash Australia PMI release, May 2026
- The headline composite PMI output index fell to 47.8 in May from 50.4 in April, the second sub-50 reading in three months
- Services business activity dropped to 47.7 from 50.7;
- Manufacturing PMI eased to 50.2 from 51.3, with the output index unchanged at 48.5 for a fourth consecutive month of contraction
- New orders fell at the fastest pace since September 2021, with panel members linking the decline to uncertainty stemming from the Middle East conflict
- Business sentiment was at its joint-lowest level since the survey began over ten years ago, matching the reading recorded at the onset of the COVID-19 pandemic in March 2020
- Private sector employment fell for the first time since late 2024, with the rate of job shedding the joint-fastest in over five-and-a-half years
- Input price inflation remained the second-strongest since August 2022, driven by fuel, raw materials and transportation costs, though the rate eased from April
- Middle East war disruption continued to affect manufacturing supply chains via vessel delays, material shortages and elevated fuel costs
Australia’s private sector slipped back into contraction in May, with the flash composite PMI falling to 47.8 from 50.4 in April, as a sharp deterioration in new orders and a collapse in business confidence painted one of the bleaker monthly snapshots in the survey’s history.
The reading marked the second contraction in three months and was broad-based across sectors. Services activity fell to 47.7 from 50.7, while manufacturing output held at 48.5 for a fourth consecutive month below the expansion threshold. The headline manufacturing PMI edged down to 50.2 from 51.3, kept marginally in positive territory only by a lengthening of supplier delivery times, itself a symptom of ongoing Middle East supply chain disruption rather than demand strength.
The most striking component was new orders, which contracted at the fastest pace since September 2021. Survey panellists pointed directly to elevated uncertainty generated by the war in the Middle East as the primary drag on market conditions, with both services and manufacturing reporting solid order book contractions. Manufacturing supply chains bore the sharper end of the disruption, with vessel delays, material shortages and fuel price impacts pushing supplier delivery times to their second-largest deterioration in nearly four years.
Business sentiment deteriorated further, reaching its joint-lowest level since the survey’s inception, matching only the reading recorded at the start of the COVID-19 pandemic in March 2020. Panellists cited concerns over costs, potential interest rate increases and challenging market conditions as the driving factors behind the historic low in confidence.
The employment picture also turned for the first time in months, with private sector jobs falling marginally but at the joint-fastest rate in over five-and-a-half years, as firms moved back into retrenchment mode in response to weakening demand.
Cost pressures remained a complicating factor. Input price inflation, driven by fuel, raw materials and transportation, was the second-strongest since August 2022, leaving Australian businesses squeezed between softening revenues and elevated operating costs.
Eleanor Dennison, Economist at S&P Global Market Intelligence, noted that while the output position looks less severe than March, demand and employment have taken a greater hit, and the level of confidence among Australian businesses is among the lowest on record. Business sentiment matching its all-time low, set during the first pandemic lockdown, is not a number the central bank can easily dismiss. The employment component turning negative for the first time since late 2024 adds a labour market dimension that had previously been absent from the slowdown narrative. Input price inflation remaining the second-strongest since August 2022 keeps the RBA in an uncomfortable position: growth is weakening but cost pressures have not yet relented enough to give policymakers clean cover to ease
