Weakness in retail and transport has stalled growth of the overall services sector.
The Australian Industry Group's Performance of Services Index (PSI) fell 2.3 points to 49.5 points in March, with a move below the 50 mark, indicating the sector is shrinking.
The decline was driven by contractions in retail and transport and storage services.
The retail subsector shrank for the six consecutive month in March, mainly due to the lower Australian dollar pushing up the cost of imported products.
Official retail trade figures for February, released on Monday, showed spending was flat, supporting the Ai Group survey findings.
News that makes sense
Your trusted source for staying up-to-date with the world around you. Get free daily news updates and analysis, straight to your inbox.
Ai Group chief executive Innes Willox says the sector's brief return to expansion in February was, obviously, short-lived.
"The ingredient missing from a more robust performance remains the continuing business restraint, particularly in relation to investment," Mr Willox said.
"There is clearly scope for measures to be taken in the May (federal) budget to stimulate business investment and confidence."
However, there were some positives - the health and community services subsector continued to grow in March.
The subsector, which includes health, welfare and education services, expanded for the eighth consecutive month.
Personal and recreational services also grew on the back of the lower dollar, compared to 2015.
The subsector benefited from a lower dollar with consumers preferring to spend on local services and holidays rather than foreign goods and overseas trips.
The earlier timing of Easter this year boosted accommodation, cafes and restaurants, with a higher demand for hospitality services in March.
Despite those gains, the overall services sector contracted over the month.
Transport and storage services remained the weakest subsector, although respondents were optimistic lower fuel costs and new transport infrastructure could help improve conditions in future.
