Australia services index drops to 48.9 in March -AIG

SYDNEY, April 3 Wed Apr 2, 2014 6:30pm EDT

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SYDNEY, April 3 (Reuters) - A private survey of Australia's service sector showed a sharp pullback in March after an outsized gain the previous month, with firms citing concerns about potential spending cuts in the government's May budget.

The Australian Industry Group's performance of services index (PSI) fell 6.2 points to 48.9 in March, so undoing all of February's jump. Measures of sales, employment and inventories all dropped back below 50, though new orders held up better at 51.8.

"Concerns over the domestic economy and uncertainties surrounding potential spending cuts in the Federal and state budgets have reportedly dampened demand for services," said AIG.

The Liberal National government has been warning that a tough budget will be needed to reign in spending and make up for a shortfall in revenue.

Official measures of services activity have been consistently stronger than the PSI, which has been in recession territory for much of the past five years even as the economy managed annual average growth of 2.5 percent. (Reporting by Wayne Cole)

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