The services sector again contracted slightly in the last month and is 'a long way from being back to full health'

New Zealand's services sector, which makes up about two-thirds of our GDP, shrank again last month and is "a long way from being back to full health", BNZ economists say.

The BNZ – BusinessNZ Performance of Services Index (PSI) for April showed a slight fall to 48.5 from 48.9 in March. (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining).

BNZ senior economist Doug Steel and economist Matt Brunt said for all the commentary around the economic recovery, "the PSI is a good reminder that current conditions are extremely challenging".

"New Zealand’s PSI remains weaker than all our key trading partners. At 48.5, it’s consistent with a service sector still moving backwards," they said.

The economists noted that across industries, the PSI retail trade index has consistently been the weakest over the last year.

"Official figures show that retail sales volumes have declined in 9 of the last 12 quarters."

While the services sector continued to languish, the latest BNZ – BusinessNZ Performance of Manufacturing Index (PMI) that was released on Friday showed that New Zealand’s manufacturing sector showed an uptick in expansion during April.

The seasonally adjusted PMI for April was 53.9 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was up from 53.2 in March and the fourth month in a row showing expansion. The survey was also above the average of 52.5 since it began.

However, Steel and Brunt said combining together the PMI and PSI, the Composite Index (PCI) suggests the economy is struggling for momentum.

"There is an increasing risk that our forecasts for GDP growth of around 2% this year are not met."