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NZ services activity slows for third consecutive month in February but still expanding

Monday 19th March 2018

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New Zealand's services sector activity, which accounts for about two-thirds of the economy, slowed for a third consecutive month in February as the activity/sales sub-index fell to its lowest level since November 2014. 

The BNZ-BusinessNZ performance of services index declined 0.7 points to a seasonally adjusted 55 last month. All of the five sub-indices were above the 50 reading that separates contraction from expansion. 

"The PSI remains encouragingly expansive. However, at the same time, it has slowed to about average, compared to its roaring rate of advance about this time last year," said Bank of New Zealand senior economist Craig Ebert. 

General business sentiment has been gloomier since the formation of the Labour-led government in September given new policies on industrial relations, the labour market and trade as well as the property market.

The activity/sales sub-index dropped 5 points to 54.3 in February while employment lifted 0.2 points to 50.6, new orders/business rose 1.9 points to 60.4. stock inventories gained 1.8 points to 54.1 while supplier deliveries rose 0.5 points to 54.6.  

The "dip in the activity/sale sub-index (54.3) to its lowest value since November 2014 indicates an area that needs to be monitored in the months ahead," said BusinessNZ chief executive Kirk Hope. 

Today's release follows its PMI sister survey on Friday, which showed manufacturing activity fell to seasonally adjusted 53.4 in February from 54.4 a month earlier, as an early livestock cull last year weighed on primary production at the start of 2018. The composite index - which combines the two surveys - fell 1.1 points to 54.8 on a GDP-weighted basis and 0.7 points to 54.4 on a free-weighted basis.

Ebert said today's data, coupled with the PMI "certainly counsel against getting carried away" regarding economic growth in the first quarter. BNZ is tipping the economy to have expanded 0.6 percent in the March quarter and expects annual growth to ease to 2.8 percent.

He is, however, expecting growth to pick up later this year on fiscal stimulus, primarily directed at the household sector. "With this, we should probably expect the PSI to edge up over the next three-to-six months," he said. 


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