Services sector index falls to lowest level outside Covid lockdowns

The weakest sector was retail, which recorded the lowest PSI result in May.
Photo: 123rf.com

Activity in the country’s services sector has fallen to its lowest level outside Covid lockdowns.

The BNZ-Business New Zealand Services Performance Index (PSI) fell 3.6 points to 43.0 in May – a reading below 50 indicated the sector was shrinking.

This was the lowest reading since the lockdown in August 2021 and the weakest level after lockdowns in 2021 and 2020.

Activity and sales were the weakest among key indicators, reaching levels well below the long-term average, while new orders also fell sharply, indicating a sharp decline in demand.

BusinessNZ chief executive Kirk Hope said May’s result was the “worst possible” for the sector, with levels of contraction greater than during the 2008/09 global financial crisis.

BNZ senior economist Doug Steel said the pace of the decline was “as worrying as the magnitude of the decline over the last three months”.

“It’s weak, then it’s very weak. Overall, this demonstrates a turnaround in the services sector and its momentum,” Steel said.

The survey found that most service industries regressed, with retail being the weakest of all and recording the lowest May PSI score.

Steel said it suggested a risk of deterioration in economic growth in the second quarter (first quarter data will be released this week).

“Combining the very weak PSI with last week’s weak Performance of Manufacturing Index (PMI) results in a composite index that points to a greater decline in GDP than many might think.

“Even if Q1 GDP numbers come in close to zero this week, as we believe on an annualized basis, PSI and PMI indicators point to a larger negative result than we already anticipate for Q2.”