File photo. Photo: 123RF
The services sector is contracting with employment recording its weakest month since February 2022.
The BNZ-Business New Zealand Performance of Services Index (PSI) fell to 48.8 last month, which is down 2.3 points from November, and well below the long-term average of 53.4 for the survey.
Anything more than 50 points suggests expansion, while anything less suggests contraction.
BNZ head of research Stephen Toplis said retail trade was soft as the sector faced a sluggish Christmas trading period.
"This was a bit of a nasty turn coming off the back of a Performance of Manufacturing Index (PMI) which was also very weak.
"If you put the PSI and PMI together you usually get a reasonably good feel as to where the current level of GDP is.
"You add these two together and it tells us we're in recession territory."
While new orders/business (51.2) remained in expansion, activity/sales (47.1) has remained entrenched in contraction for the past three months.
The ongoing role of tourism was positive with accommodation, cafes and restaurants, and transport and storage, still outperforming other sectors.
"Tourism has been a key driver of the services sector and will continue to support the economy, but it can't do all the heavy lifting by itself," Toplis said.
The latest PSI result of 48.8 was the lowest recorded since last August's result of 47.6.
"Statistics New Zealand has already reported 6000 jobs were lost in the September quarter," Toplis said.
"We don't think this cycle will result in the substantial layoffs that we saw, for example, during the GFC [global financial crisis] but we do believe the unemployment rate will rise sharply as businesses fail to absorb the increased supply of labour currently flooding across our borders."
