Recent falls in interest rates are providing encouragement for the future prospects of NZ Inc - but in terms of the present, it is still a big grind out there for businesses.
New Zealand’s services sector remained in contraction in October, according to the BNZ – BusinessNZ Performance of Services Index (PSI).
This follows an October result for the Performance of Manufacturing Index, released on Friday, that showed a fall in activity.
The PSI for October, released on Monday, was 46.0 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining).
This was up 0.3 points from September, but activity has varied by only 0.7 points over the last four months, which has kept the sector within a tight band of contractionary results. The October result is also still well below the average of 53.1 over the history of the survey.
BusinessNZ's CEO, Katherine Rich said that the October result showed mixed results when broken down by sub-index values. While the New Orders/Business Index (48.1) was at its highest level since February 2024, the Activity/Sales Index (44.3) lost some momentum during October. The Employment Index (46.4) recovered some of its fall after a sizeable drop in September.
The proportion of negative comments for October stood at 59.1%, which was up from September at 58.5%, but down on 60.8% in August and 67.0% in both July and June. The cost of living and the general economic climate continued to dominate comments from respondents.
BNZ's senior economist Doug Steel said although the PSI is now contracting at a much slower pace than it was in June (when the PSI was 41.1), it has been hovering between 45 and 46 over the last four months.
"The activity outlook for the sector has improved in recent business surveys, but the here and now remains extremely challenging," Steel said.
The PMI results released on Friday showed a fall in that indexl from 47.0 to 45.8 in October.
Steel said the latest outturn for that index was a reality check after three consecutive months of improvement in the PMI.
"Despite lower interest rates, the manufacturing sector continues to face significant headwinds. Recent business surveys have shown a sharp contrast between improved expectations for activity and weak current conditions. The PMI has now been below breakeven for 20 consecutive months and activity still looks soft underfoot."
Steel said combining the PMI and PSI, the Composite Index (PCI) suggests GDP is still tracking below year earlier levels.
"Our economic forecasts are for GDP to contract again in Q3 before starting to gradually recover. The PCI suggests some downside risk to our forecasts, which are broadly consistent with the RBNZ’s projections in the August MPS. Lower interest rates will be supportive, but the PMI and PSI both stuck in contraction supports the case for further monetary policy easing."
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