The services sector, which makes up about two thirds of our GDP, fell back into contraction during February, according to the latest BNZ – BusinessNZ Performance of Services Index (PSI).
BNZ's senior economist Doug Steel said that "alas, today’s PSI suggests the economy is recovering at a slower pace than we might have expected. The PSI comes as a real disappointment given that Friday’s Performance of Manufacturing Index (PMI) was relatively upbeat".
The PSI for February was 48.0 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). This was 2.7 points lower than January and below the average of 52.8 over the history of the survey.
BusinessNZ's CEO, Katherine Rich said that the sector's rebound into expansion only lasted two months, "with a February result similar to levels of contraction seen towards the end of 2025".
She said all main sub-index results were in contraction, with Stocks/Inventories (46.7) displaying the largest level of contraction, followed by Employment (47.2)
BNZ's Steel said the PSI had "fallen back under the magical 50 mark to wallow at 48.0".
"Every indicator was sub 50 with a notable drop in employment to 47.2, its lowest reading since January 2025."
He said the activity/sales index slumped to 47.9 from 53.8, which was enough to drag the combined PMI/PSI activity indicator down substantially from last month’s reading.
"As the PMI and PSI survey followed the disastrous weather events of early February one might consider that there is some hope of a bounce in the ensuing months, but the March survey will be the first to reflect the impact on business of the bedlam in the Middle East so any such bounce may now be a vain hope," Steel said.
GDP figures for the December quarter are to be released on Thursday. The Reserve Bank has forecast a 0.5% quarterly climb, following on from the reported 1.1% rise in the September quarter and the RBNZ is forecasting a 1.1% rise for the March quarter we are currently. But the 'partial indicators' released ahead of the December quarter figures have suggested the final figure for that quarter may be somewhat lower than 0.5%.
BNZ head of research Stephen Toplis said the BNZ economists are currently forecasting 0.7% growth in Q1 producing an annual 1.1% reading.
"The Reserve Bank is even more upbeat with a 1.1% pick for the quarter alone. And all this comes off the back of last Thursday’s partial data which, in conjunction with the soft building numbers, indicates Q4 GDP could also surprise the RBNZ to the downside. We are now forecasting just 0.3% growth for that quarter compared to a Bank pick of 0.5%."
3 Comments
I'm not sure how service sector productivity is measured, but is a figure for productivity per head employed in the sector a available?
Thinking of the impact of AI reducing (human) head counts, while output does....what?
Since the 1930's the role of government deficit spending in fiat currency based economies has been well understood and utilized repeatedly in times of crisis and in normal times to underpin the private sector and provide financial stability - low unemployment and an even distribution of resources throughout the economy - healthcare, education, infrastructure etc.
Without counter cyclical fiscal policy you get economic fragility and contraction - the private sector is not ever able to use all available spare capacity in the economy - even in good times - but especially in bad times.
The euphemisms are becoming exceptional - this is the real skill of a NZ economic commentator - instead of saying "the NZ economy is contracting and going backwards" - say - "the economy is growing at a slower pace than expected". It's only slightly better than the green shoots of recovery.
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