Services sector faces record decline amid bleak economic conditions

New Zealand’s services sector has experienced a significant downturn, with the BNZ-Business New Zealand Performance of Services Index (PSI) plummeting to a record low of 40.2 in June, indicating a severe contraction.

This marks the second consecutive month of historically low activity levels outside of Covid lockdown periods.

BNZ senior economist Doug Steel highlighted that the PSI has been substantially below average for over a year, with the decline appearing to accelerate. Key factors contributing to the weakening include poor retail sales and high interest rates, which have reduced consumer spending power. Business New Zealand chief executive Kirk Hope told state media that the high interest rates are slowing down the economy, particularly affecting sectors reliant on discretionary spending such as hospitality and tourism.

The future outlook for the services sector remains uncertain, largely dependent on the trajectory of interest rates.

Hope noted that a reduction in interest rates could provide some relief, but until then, the sector is likely to remain in a challenging state.

The proportion of negative comments within the June PSI rose to 67%, reflecting widespread difficulties faced by businesses.

Additionally, the combined PSI & PMI index, which measures both services and manufacturing, also fell to its lowest level outside of Covid lockdowns. The ongoing economic challenges underscore the need for strategic interventions to stabilise and revitalise the sector.

Image credit: Lukas