Weak sentiment continues to weigh for New Zealand's services sector

1:11 pm today

The BNZ-Business New Zealand Performance of Services Index (PSI) Index fell 1.2 points in May to 47.5.

Photo: RNZ/Liam K. Swiggs

The services sector - which makes up about three-quarters of economic activity - had another month to forget, as weak sentiment continues to weigh on activity.

The BNZ-Business New Zealand Performance of Services Index (PSI) Index fell 1.2 points in May to 47.5 - a reading below 50 indicated the sector was in contraction.

BNZ senior economist Doug Steel said it was weak across the board, with sales, new orders and employment all going backwards.

"All major PSI components recorded a sub-50 reading in the month," he said.

"Activity/sales and new orders were the most downbeat at 44.7 and 47.6 respectively, leaving these components furthest below their historical norms."

The outlook for employment continued to be poor.

"The PSI employment index remains weak, posting its 30th consecutive month under 50, and consistent with our view that there is upward pressure on the unemployment rate."

Despite the news of a peace deal between Iran and the United States on Monday, Steel said the latest PSI data was not a good sign for economic growth in the second quarter (the three months ending June 30th).

BusinessNZ chief executive Katherine Rich.

Photo: Supplied

"It's shaping up that the second quarter of the year will be a very weak GDP number," he said.

"That's in contrast to what we get this Thursday for the first quarter of the year, which is likely to look quite strong."

However, Steel expected confidence levels to improve after the news of the peace deal.

BusinessNZ chief executive Katherine Rich said consumers were still wary of spending.

"It is frustrating to see the services struggle, but it is difficult to see how the sector's fortunes will turn around quickly," Rich said.

"The industries within the sector that were weakest in May were those, like cafes and restaurants and recreational and personal services, that rely heavily on discretionary expenditure by consumers."

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