The services sector accounts for about two-thirds of the economy and includes tourism, retail and hospitality. Photo: 123RF
- Services sector falls into contraction after tasting growth the month before
- Sales and new orders indicators take a tumble
- Soft services sector points to soft economy recovery
- Further RBNZ rate cuts to be expected but at slower pace
The spark that emerged in the services sector at the start of the year has faded, signalling that economic recovery will be slow and uneven.
The BNZ-Business New Zealand Performance of Services Index (PSI) fell 1.3 points in February on the month before to 49.1, after nudging into positive territory for the first time in nearly a year in January.
A reading above 50 shows growth in the sector, which accounts for about two-thirds of the economy and includes tourism, retail and hospitality.
"While one might have hoped that the PSI would move higher again, we know that economic turning points can be messy," BNZ senior economist Doug Steel said.
All five of the PSI's indicators were in contraction with the sharpest drop in sales, and a lesser fall in new orders, with slightly less 'negative' readings for employment and deliveries.
However, the level of negative comments in the survey eased from January although remain dominated by how tough the economic complaint was.
Steel said combining the services survey and the companion one for the manufacturing sector pointed to growth this year and likely further interest rate cuts.
"The pace of any recovery needs to be monitored carefully as it will have some bearing on how low the RBNZ (Reserve Bank) thinks it may ultimately need to take its cash rate."
"Further lowering of the cash rate is likely, albeit at a slower pace than has recently been the case," Steel said.
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