The soft services sector points to soft economy recovery. Photo: Unsplash
- Services sector activity edges higher but still in contraction.
- Sales fall but new orders improve.
- Soft services sector points to soft economy recovery.
- Further RBNZ rate cuts to be expected.
The services sector is struggling to gain traction and is weighing on the pace of economic recovery.
The BNZ-Business New Zealand Performance of Services Index (PSI) edged fractionally higher in March on the month before to 49.1, after falling back into contraction in February.
A reading below 50 shows activity is slowing in the sector, which accounts for about two-thirds of the economy and includes tourism, retail and hospitality.
"The services sector is still contracting, albeit only just. Cost pressures are high, but firms are struggling to pass these onto consumers," BNZ senior economist Doug Steel said.
The indicators in the PSI were a mixed bag, with sales falling further to their lowest point this year, while new orders edged higher to their best level in a year.
The employment, stocks and deliveries indicators all edged higher.
The level of negative comments in the survey eased from February with economic uncertainty, high costs, and weak consumer and client confidence dominating, and the added pressures from global tariffs, and seasonal or weather-related downturns.
Steel said combining the services survey and the companion one for the manufacturing sector pointed to modest growth this year at best.
"The extent of growth implied by our indicator has been dampened by the softer PSI readings... Recent global developments increase the risk that this does not happen."
He expected the Reserve Bank to cut the official cash rate below 3 percent.
A sign of weakness in the service sector came from Stats NZ numbers showing retail sales using electronic cards were down 0.8 percent in March on the month before, and 1.6 percent lower than a year ago.
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