Australia services index slips to 48.6 in April -AIG

SYDNEY Sun May 4, 2014 7:30pm EDT

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SYDNEY May 5 (Reuters) - Australia's services sector contracted for a second month in April, with firms still fretting about the potential of tax increases and big spending cuts at the upcoming government budget, a private survey on Monday showed.

The Australian Industry Group's performance of services index (PSI) fell 0.3 point to 48.6 in April, following a 6.2- point drop in March. Measures of sales and employment stayed below 50, while the new orders index slipped below 50 after three months of expansion.

"The contraction in sales, new orders and employment in the large services sector suggests the overall economy is clearly struggling to find sufficient alternative sources of expansion to offset the impacts of the slowdown in mining-related investment," said Ai Group Chief Executive Innes Willox.

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 Ian Chua; Editing by Marguerita Choy)

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