Still no light at end of tunnel for NZ's service sector

New Zealand's service sector took a further hit in April, suffering its 13th consecutive month of contraction, the BNZ Capital-Business NZ Performance of Services Index (PSI) showed. April's PSI score of 43.7 was the second lowest since the series began in 2007, down from 47.1 in March. A score below 50 represents contraction in the sector. The tourism industry was facing a "torrid time," BNZ Head of Research Stephen Toplis said, as both domestic and foreign revenues were "both under threat." "The tourism industry is of fundamental importance to the strength of the broader New Zealand services sector given its reach across a multitude of differing businesses including transport, accommodation, restaurants and cafés and the wider retail sector," Toplis said. "Accordingly, the headwinds that tourism currently faces are proving to be a substantial headache for the economy as a whole," he said. "Domestically, it's clear that household spending is under substantial pressure, as evidenced by the sharp falls we are seeing in total retail sales. Unfortunately, in this sort of environment, it is discretionary spending that takes the biggest hit and that includes holidays." "While the weakness in the domestic economy poses its own risk, the international situation is even more problematic. First and foremost the decision to travel to New Zealand is influenced by the well-being of folk in their home economies. As a proxy for this GDP growth is as good a measure as any. And this is where things get very ugly indeed." Toplis noted that the Australian economy was faring better than many, and that the exchange rate between New Zealand and its Tasman neighbour was more favourable to the Australians, who would be looking for cheaper holidays closer to home. He also noted that Chinese visitor numbers were "hanging in there." However, New Zealand's tourism industry was getting "absolutely clobbered by the demise of the UK and US economies which provided 11.0% and 8.0% of our tourists respectively," Toplis said. "With the ongoing problems that these countries face, more of the same can be expected." "We are seeing the first signs that the worst of the global growth phase is behind us. Certainly the pace of downgrades is slowing substantially which simply has to happen before any genuine pick up can occur. However, with households remaining under pressure for some time to come, it may yet be a long time before folk in the tourism sector can have another day in the sun. Roll on the Rugby World Cup!"