Activity in New Zealand's services sector - which accounts for about two-thirds of the country's GDP - has plummeted, according to a long running survey.
The BNZ – BusinessNZ Performance of Services Index (PSI), which has been going since 2007, recorded the lowest level of activity for a non-COVID lockdown month since the survey began.
An index level below 50 shows a contracting services sector, above 50 shows it is expanding. The latest monthly result was 43 - down some 3.6 points in a month.
It is further evidence that the Reserve Bank's efforts to stamp out inflation are really starting to have a deadening impact on the economy.
While the March quarter GDP results are due to be released this week and it's a coin-toss whether they will show a contracting or (slightly) expanding economy, this services sector index reading potentially has very bad portents for the GDP outcome in the June quarter, which finishes in under two weeks.
"There is weak and then there is very weak," BNZ senior economist Doug Steel said.
He said the latest index reading is lower than the 44.9 low reached during the Global Financial Crisis.
"This tells of a services sector in reverse, at pace," Steel said. He said the latest index reading "extends a rapid decline from February’s ok looking 52.4".
"The speed of decline is as worrisome as its size over the past three months."
BusinessNZ chief executive Kirk Hope said the May result "was as bad is it can get for the sector", reaching contraction levels greater than during the Global Financial Crisis of 2008-09.
Steel said all major Performance of Service (PSI) components fell in the month. This puts them all further and "significantly below average".
"Activity/sales was the weakness in May on an outright basis, at 40.9. That is a massive 13.6 index points below its long-term norm, a comparison only surpassed by the new orders/business indicator that slumped to 42.6 and some 14.5 index points below normal. Demand has slumped," he said.
"Most industries are in retreat, with retail’s PSI 33.8 the weakest of all and its lowest ever May result. As one PSI respondent put it, ‘sudden drop in sales’ and ‘average order volume down significantly’. Another noted ‘Redirection of the products customers are buying. Lower value products have higher demand’.
"This sentiment fits with last week’s electronic card transaction data for May. The seasonally adjusted data saw the value of retail transactions drop 1.1% m/m, to be down 2.6% on a year ago. The average value of a transaction was 2.2% lower than a year earlier," Steel said.
He said this all suggested "downside risk" to second-quarter GDP.
Steel said combining the "very weak" PSI with last week’s "soft" Performance of Manufacturing Index yields a composite index "that points to GDP falling by more than many might care to believe".
"Even if this week’s Q1 GDP figures manage something near zero as we think on an annual basis, the PSI and PMI indicators suggest a larger negative than we already anticipate for Q2.
"They raise the risk of significantly weaker annual GDP growth in Q2 than that published in the RBNZ’s May MPS [Monetary Policy Statement]," Steel said. The RBNZ has forecast that GDP will grow by 0.1% in the June quarter.
"NZ’s PSI and PMI also look weak relative to elsewhere. Indeed, both local indicators are lower than their equivalents across the major comparators we look at like in Australia, China, Europe, Japan, UK, and the US," Steel said.
93 Comments
Those $16 (and then some more) will be quickly gobbled up by the increases in rates, insurance premiums, power bills, etc.
Speaking of power in NZ, did anyone see the piece in the Telegraph about learnings the UK can take from how Cindy screwed up the middle NZ with her climate virtue-signalling? Link
three years of rising energy prices have left 110,000 households unable to warm their homes, 19pc of households struggling with bills and 40,000 of them having their power cut off due to unpaid bills, according to Consumer NZ
Not a peep about these stats in our local media here.
Two things to consider here:
- Operating profits for elec, gas, and water industry are around $6bn per year - off about $25bn of income
- But, a couple of decades of milking the assets the state built have left the network in a poor state, so maintenance costs are now picking up significantly (big growth area for jobs). This is adding costs.
Austerity is making this recession deeper and longer. This is economics 101 level stuff that the current lot are willfully ignoring for god knows what reason other that to placate the “tax cuts at all costs” crowd. You cant cut your way out of a recession, instead we should be doing the opposite.and spending much more on infrastructure projects, which coincidentally is what the country needs anyway. Double fail.
Bishop wants private capital to fund infrastructure in NZ at a time when his government is shutting its wallet on critical spending. Honestly, this doesn't exactly provide confidence in the economy to long-term investors.
We will take the dessert from migration-led population growth in the form of tax revenue, thank you, but leave the infrastructure bill for the broader economy to sort out.
Baywatch,
but at least we are now back on track. But not a train track, more a (not so slow motion)train wreck. The last lot were grossly incompetent, but what on earth do you find encouraging about this bunch? So far, the big idea is to hand landlords almost $3bn, despite the economy being in such poor shape. Willis shows no signs of being capable-the public sector cuts are entirely haphazard. As Matthew Hooton has shown, she will nevertheless borrow MORE than Robertson. It's just depressing.
Now add to that the upcoming $35 a month increase in power charges, and the continued transition off low user tariff plans on to higher cost plans. All that palaver about "warm and dry" homes becomes a complete joke when those homes will now be freezing cold due to their inhabitants being unable to afford to turn on their heating.
Not a peep because they are rubbish analysis. And Shaun Rush is a pretty dubious commentator - ex Wellington City Council who seemed to back climate change denial.
I also get a little tired of a patronising tone which describes Jacinda Ardern as 'Cindy'. NZ shut down was a brave call, and not one that the Nats would have got to. The criticism of the Covid response should be at the Reserve Bank - which is a heap of old men in ties.
Ardern became PM after the election of 23rd Sept, 2017. Just 18 months later in March, 2019 the Mosque attacks occurred, a mere 9 months after that we had the Whakaari/White Island tragedy in Dec, 2019. Three months later covid-19 hit and she and Grant Robertson closed our borders. If we had at the time ".... zero health system, very little ventilators and severe shortage of heath professional." (s). I hardly think that was entirely the fault of the Ardern Government. I have previously believed that when significant problems arise in various sectors of NZ's economy shortly after a new Govt. comes to power, the fault, either all or at the very least, partially lies with the former Govt. ...... that is, until this present Govt. I believe in overturning much of what what was good including cancelling the Cook Strait ferry contract that the previous Govt. initiated, continuing with unpopular tax cuts and through lack of having any vision let alone a strong vision, they have created so much uncertainty within the economy, and that in itself has worsened our economy just in the few short months they have been in power.
Surely both landlords and top 40% income earners were better off during the GFC when interest rates plummeted, there was full interest rate deductibility, income tax was lower, and general prices were lower relative to income.
Yes indeed. Nice comparison between then and now. Also, post-GFC, Chyna took up the slack and did the heavy lifting for the Anglosphere. Absolute godsend for NZ/Australia.
The cherry on top - John Key struck gold in 2013 when he introduced working rights for international students and an easy pathway to residency post-study.
Remember those "world-class institutions" his government boasted about that were renting tiny apartments in Auckland CBD to deliver business lectures to Indian students.
The media s**tstorm that followed: migrant exploitation in kitchens and farms, overseas education agent frauds, fake visa scams, tertiary institutions not conducting exams and practically awarding degrees on receiving tuition fee in full.
I love this image of the plucky, determined saver, putting a few dollars a week into a term deposit so that they can ride out the tough times in comfort. Studying the company reports to inform astute investments in the right shares. Forgoing the coffee and avocados so that they can max out their nest egg. Turning their $70,000 a year income into millions by scooping up a goldmine property on the north shore for a few shillings.
The people who are benefiting are the generation that got free tertiary education, low house prices, rising stock markets and boundless non renewable resources that they have now used up. Most rich people are either older or have inherited wealth or both. Nothing to do with their prudent lifestyles. Social mobility is a myth for most people.
Yeah, that's not true, I paid for my Uni, house prices were quite high when I purchased. Stock market crashed twice whilst I was investing. I don't invest in property (I have my own home of course), but, my net worth has still increased over the last two years. So, if you saved and didn't borrow and spend, right now you should be looking pretty sweet. I'm expecting significant increases in the value of my investments over the next few years..
I agree with you Smudge02
Rates are not high, they have just come off a low base.
Those on here who talk about the high OCR are just regurgitating the same BS
Check out the trend and put in max time.
I agree with you, I meant to say higher rates than two years ago. But, you are right, actually right now rates are very low still. I don't understand why people think there will be all these cuts soon and we will be back at 3% mortgage rates. That is not going to happen. People will soon start realizing this.
The wealthy don't really care about their net worth declining as their disposable incomes are so large that they barely notice. They have significant ability to borrow and therefore snap up assets at lower prices. They love central banks. They don't need any particular smarts to get richer. Just follow what central are up to and plan accordingly.
Not at all. Their key KPI is to return inflation to its target band and keep it there.
That means taking heat out of the economy itself and preventing another wealth effect from rapid rising house equity.
Bang on at the mo. The only people that can be upset are the over leveraged or those holding too many houses.. but they are responsible for managing their own risk.
Everyone can be upset. And have our sympathies. Though it probably won't help them.
The warning signs for this outcome have flashed red for years. A lot of people made provisions and plans for it.. I would urge everyone to plan for a longer period of HFL rates, reduced immigration and a longer recession. Probably some people need to consider the probability of a tiny super vs their needs too.
BTW in parallel I would urge people to research AI and how it will affect them. And how a war with China might affect nz and them.
Sure we 'might' see nz and the world suddenly jump out of all its problems next year ..but I would guess it's a 10% probability of reality. So important to read the news, research possible outcomes and plan
Will inflation not continue to trend downwards with a small cut? As the OP said, The RBNZ Sat on their hands while the economy overcooked with emergency rates. It seems they are now choking the economy - every day reports of increased businesses in liquidation. I have no trust that they wont wait until it all really hits the fan before they act and we will be back at emergency rates and doing it all again!
So the Recession will deepen?
And unemployment will go up?
Kiwis will get poorer?
The few older and richer will get richer still?
And the RBNZ will stick to its guns claiming it's all going to plan?
And National/ACT supporters will continue to blame everyone except National/ACT?
And they're still be some here saying we need higher interest rates?
Quelle surprise!
What is especially astounding to me is that we are almost unique in our determination to hit the self-destruct button. Check out this graph from BNZ comparing us to major economies. What are we actually doing here? It's beyond ridicule.
(Funny. I updated a similar graph last week back with my projections in it.)
"What are we actually doing here?"
We're tolerating the naive and immature actions of a central bank that is largely accountable to no one - while we have a government so desperate to be re-elected they do dumb things in spite of evidence that they shouldn't.
I jokingly said some time ago NZ would be turned into one massive retirement village with the rentiers being looked after by the newly imported cheap labor. ... Now I'm beginning to think that might actually happen.
We are undergoing a huge societal transformation here - younger people packing up and leaving, while new arrivals come in search of a job and a new life in a supposedly 'advanced economy'. Nobody is thinking the implications of this change through properly - the impact of generations of families being separated, overloaded infra, rapid onset multiculturalism (nothing wrong with this at all - but the frictions need to be recognised and managed), etc.
Why is higher rates for longer a mistake.
If you drop them too soon then inflation will rise and we would just have to put them even higher later to stop that.
They are high for a reason.. dropping them before new habits are embedded is a far worse idea
The issue of too big a boom .... was caused years ago. A recession and other issues is now an unavoidable outcome.
Had people not all bought into FOMO and the f
oolish idea house prices and rents would keep rising... and that rates would be low.... we wouldn't be in the mess we are.
The next few years are gonna be hardest for those that.
1. Overleveraged
2. Didn't plan for the recession that always was going to come
3. Aren't reading the room now... repeating the same mistakes as 1 and 2
Noone is there to look out for us...
Yep, loads of people moaning about their self inflicted pain. This was always going to happen......and not it is not everyone else's fault. For those that are affected, is their fault, and their fault only and no amount of moaning will change that. I say take the hit, and learn.
My read of the data is that there was a bit of a deadcat bounce visible in February 2024. Hence, I think Q1 figure could be as high as zero (my money is on -0.1). Q2 figures are locked in negative though -0.3 or -0.4 look like a real possibility.
Worth noting that the services component of CPI picked *up* in Q1 while demand plummeted. So, RBNZ are killing jobs and the economy and prices are basically saying 'so what, most of us don't change with demand you idiots!'
Many of their predictions are here:
https://www.interest.co.nz/economy/128127/its-line-ball-call-whether-gd…
Try and keep up ... ;-)
"A couple with no children at home and a combined income of $180,000 will be in line for fortnightly tax relief of $80.19 [per week] or $2085 a year."
https://www.stuff.co.nz/money/350295653/5-households-5-very-different-t…
its unlikely to be at the next review - which is the 10th July - unless this weeks QTR 1 GDP figures are especially dire, but i would pencil in one for the 9th Oct, if this article is on the money.
GDP figures for the June Qtr will be released in late Sept and if it indicates a big drop in GDP - inflation or no inflation the RBNZ will find themselves under enormous pressure to boost the economy in time for the Xmas season.
I think GDP and CPI going to come in south of RBNZ expectations. They will probably wait for CPI (after 14th June), but I’m now thinking the rate cuts could be faster and bigger than expected. Inflation is well and truly dead in NZ, along with the economy.
Or they may just continue to pull the finger to National and keep rates high.
I actually think there is a real risk that in 2 quarters time (14th October) stats NZ deliver CPI data of less than 2% (currently 1.1% last 2 quarters added together and this quarter looking low). That would be an embarrassing outcome for RBNZ if rates are still high and economy is shafted. So they may have to start now and maybe a 0.5% is on the cards this year. They may be way too late to leave the party as many of us predicted.
Yes, although I would add two other critical factors:
- Govt deficit spending in recent years has provided the private sector surplus needed to increase GDP(P), which is, after all, a measure of how much sales income exceeds costs (net operating profit).
- The other key contributor to the private sector surplus is bank credit, which we have pumped into our economy primarily via our housing ponzi. The sequence goes like this: people apply for mortgage >> banks print money and give it to people >> vendor receives freshly printed money and spends some of it into the economy >> this enables profits as long as new lending outweighs loan repayments (aka surplus) >> voila, GDP increase
If more people understood the above, we would have very different conversations about how to run the economy.
Activity in New Zealand's services sector - which accounts for about two-thirds of the country's GDP - has plummeted, according to a long running survey.
- RBNZ OCR hikes reducing profitability
- Government laying off public servants reducing demand
- Online shopping reducing demand
The budget forecasts show:
- unemployment rising into 2025 & being higher in 2026 than 2023
- falling real gdp/capita
Nice one Coalition. They only people in expansion mode are the landlords, +3bn.
Absolutely, the 2025 call was to induce maximum panic, which is what we are seeing right now. The RBNZ will almost certainly (95%+ chance) begin cutting this year, if they leave it to 2025 we would they would inflict a crazy amount of pain that wasn't actually required.
This is a very clear example of data that is current simply reinforcing what those at the interface with paying clients are seeing each day. The RBNZ continue to analyse three month old data. Added to which they are using the OCR as their main lever which has an intrinsic lag. All of this with no anticipation at all of the inertia involved with any of these steps.
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