New Zealand services sector contracts in October, hinting at Q3 slowdown

New Zealand’s service sector experienced a contraction in October, with the BusinessNZ Performance of Services Index (PSI) falling to 48.9, signaling a downturn in sales, new orders, and employment. The PSI figure represents a decline from September’s reading of 50.6 and sits below the long-term average of 53.5, indicating a significant pullback in the sector.

The drop in the PSI comes after an unexpected gain in the country’s Gross Domestic Product (GDP) of 0.9% in the second quarter (Q2) of the year. However, economists are now advising caution as this weakening in the services sector could foreshadow a slowdown in economic growth for the third quarter (Q3).

The less pessimistic outlook among firms has slightly improved, with negative sentiment dropping to 58.2% in October from 61.8% in September and 63.9% in August. Despite this slight uptick in sentiment, the broader economic signals suggest that businesses are facing increased pressures.

The data also revealed a worrisome Performance of Manufacturing Index (PMI) score of 42.5, further compounding concerns about New Zealand’s economic trajectory. The PMI is another key indicator of economic health, measuring the activity level of manufacturing sector managers.

As New Zealand navigates through these challenging economic times, with both services and manufacturing sectors showing signs of distress, analysts and policymakers will be closely monitoring upcoming economic releases to assess the full impact on Q3 GDP and potential policy responses required to support the economy.

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