15 Apr 2024

Services sector index drops to weakest in more than two years

12:06 pm on 15 April 2024
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The services sector makes up about two thirds of the economy. Photo: 123RF

The economy may be in a deeper downturn than thought after a key sector has slumped to its weakest level in more than two years.

The BNZ-Business New Zealand performance of services index (PSI) fell 5.1 points last month to 47.5, the lowest since January 2022 amid a slide in sales and new orders, and leaving aside Covid disruptions at its lowest point since 2009.

A reading below 50 indicates the sector is in contraction.

The index gives a monthly snapshot of the services sector, which makes up about two-thirds of the economy, and had shown reasonable rebound in the first two months of the year.

"The fledgling improvement in the PSI earlier this year has come to a screaming halt," BNZ senior economist Doug Steel said.

"It raises the question that the economy may well be even weaker than is widely appreciated as well as questioning the timing of any recovery."

The PSI slide was led by significant fall in sales, back to levels seen in August last year, but notable falls also in new orders and stocks. The only sub-index to rise into expansion territory was employment.

Steel said other recent surveys of business opinion and the []https://www.rnz.co.nz/news/business/507358/nz-in-recession-territory-service-manufacturing-sector-surveys-show manufacturing sector] had shown similar downturns.

He said put together with the companion manufacturing survey of last week the numbers pointed an economy that has contracted by more than 2 percent over the past year.

"That is much weaker than what folk are forecasting. While it is only one month's data, and the indicator has been volatile, it certainly raises the chances that the economy is struggling even more than some would like to believe."

However, he noted there were regional differences with weakness in northern and central, but some strength in Canterbury/Westland and Otago/Southland.