13 Dec 2021

Service industry's hopes of recovery 'limited' as capacity pressures continue - economist

2:40 pm on 13 December 2021

The services industry remains on the back foot as the sector navigates through supply chain pressures.

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Photo: 123RF

The BNZ-Business New Zealand Performance of Services Index (PSI) for November rose nearly two-points on the previous month, to 46.5.

The survey tracks the services sector, with a reading below 50 indicating the sector is contracting, while anything above would mean it was in expansion.

BNZ senior economist Craig Ebert said new orders were growing, but the sales, inventory and supplier deliveries sub-indexes were in contraction.

He said following last week's disappointing Performance of Manufacturing Index (PMI), there needed to be caution over any upcoming economic recovery.

"The undercurrents of both these surveys is that there's a limit to how much rebound you can expect anyway given the capacity pressures in the economy.

"There's just not an awful lot of room to grow out the other side anyway so firms are very quickly experiencing capacity pressures, in many instances they haven't really gone away even with the recent disruption."

Ebert said he expected improved results for the PSI in December

"We can surely expect the PSI, and even the PMI, to improve in December, given New Zealand's move into the less-restrictive traffic-light system of Covid management near the start of the month.

"Still, the latest PSI and PMI results warn against taking a strong bounce in GDP for granted, at this point."

The latest gross domestic product figures are released on Thursday.

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