The services sector went backwards in December for the 11th straight month.
The monthly Performance of Services Index by the Australian Industry Group and Commonwealth Bank shows the sector shrank every month last year, except for January.
Even more concerning was an acceleration in the pace of decline, with the PSI falling 3.9 points to 43.2 in December, further away from the 50-point level that separates expansion from contraction.
Finance and insurance was the only sub-sector to record growth last month, with retail trade and communications services recording two of the weakest results.
Financial services also performed best over 2012, recording nine months of growth and three of contraction, while communications and wholesale trade were the two sub-sectors that fell every month last year.
The Australian Industry Group's chief executive Innes Willox says services providers are being battered on all fronts.
"At the end of what was a tough year for the services sector, consumer caution, poor sentiment and the high Australian dollar all continued to weigh heavily on sales to households during the Christmas trading peak," he noted in the report.
"For services providers to the business sector, the weak state of manufacturing, and residential and commercial construction is clearly still a major brake on sales and new orders, with transport and telecommunications looking especially weak in December.
"Services businesses relying on public sector purchases are also suffering as governments cut back on their spending."
Mr Willox says the weak result strengthens the case for further official interest rates cuts early this year.
Commonwealth Bank senior economist Michael Workman says there is scope to cut official rates further below the current historically low rate of 3 per cent if the strong Australian dollar and government spending cuts keep inhibiting economic growth.
He says those potential rate cuts, combined with the continued underlying resilience of the domestic economy, should boost business conditions this year.
"Falling interest rates and relatively resilient labour markets and ongoing low unemployment below 5.25 per cent, despite soft conditions in many sectors struggling under the weight of the strong Australian dollar, should help underpin consumer confidence and activity as 2013 gets under way," he added in the report.