NZ services industry shrinks a seventh month

Monday 17th November 2008

New Zealand's services industry contracted for a seventh month in October, while lifting slightly from the previous month's slump as new orders revived.

The Bank of New Zealand - Business NZ Performance of Service Index (PSI) rose to 48.7 in October from 46.9 in September, which was the second-lowest level on record. It reached a record low of 45.6 in June. A reading below 50 indicates a contraction.

The shrinking services sector adds to the case for the central bank to continue with the steepest easing cycle since the official cash rate was introduced in 1999, with some economists predicting a 100 basis point cut or more at its next review on December 4. The economy may not pull out of its recession until 2009, according to Goldman Sachs JBWere analyst Shamubeel Eaqub.

"Few businesses are escaping the fact that the economy is now in the midst of what we believe to be the fourth quarter of the current recession," said Stephen Toplis, head of research at Bank of New Zealand.

"There's more pain to come yet with the next leg of the downturn likely led by a sharp contraction in investment activity and a significant increase in the unemployment rate," he said.

The jobless rate rose to 4.2% in the third quarter from 3.9%.

The latest PSI survey showed just two of the five diffusion indexes contracted last month, though they were the key indexes of activity/sales, on 46.8, and employment, on 47.1. New orders revive to 50, deliveries lifted to 50.2 while stocks/inventories was 52.

By Jonathan Underhill

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