Monday 19th February 2018
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New Zealand's services sector activity, which accounts for about two-thirds of the economy, dipped in January, with employment falling amid expectations immigration will keep available labour levels high.
The BNZ-Business NZ performance of services index fell 0.2 points to a seasonally adjusted 55.8 last month. All of the five sub-indices were above the 50 reading that separates contraction from expansion, with three rising while two fell.
The employment sub-index dropped 5.2 points to 50.6 in January, reversing its gain the previous month when it jumped to 55.8 from 50.7 in November. New orders/business dropped 2.5 points to 57.6. Supplier deliveries rose 3.5 points to 53.8, activity/sales increased 1.1 points to 59.6, and stocks/inventories gained 0.9 points to 51.9.
Bank of New Zealand senior economist Craig Ebert said January's figure puts the PSI at a three-month average of 56.1, meaning it has come off the boil from the record quarterly average reached in March 2017, but is still comfortably above the long-term average of 54.4.
General business sentiment has been gloomier since the formation of the Labour-led government as firms wait to see what impact new policies will have on things such as industrial relations, the labour market and trade as well as the property market.
Ebert said the employment index has slowed more noticeably than the overall PSI, with the three-month average of that sub-index at 52.3 "only just" keeping its head above the average of 51.6.
"Given its recent volatility it will bear watching for what it does next," Ebert said. "Any signals of a slowing jobs market would be important, cognisant of 1) how strong the labour market has been to date and 2) the high amount of immigration that still needs to be absorbed."
Today's release follows its PMI sister survey on Friday, which showed manufacturing activity rose 4.5 points to a seasonally adjusted 55.6 in January, although fewer positive comments from businesses point to ongoing caution. The composite index rose 0.4 points to 55.8 on a GDP-weighted basis, and 1.8 points to 55.8 on a free-weighted basis.
"While the PSI is relatively robust, combined with the performance of manufacturing index it nonetheless signals something of a slowing in GDP growth for the near term," Ebert said. "Still, this is very much in line with our views. Specifically, we expect real GDP to expand 0.5 percent in each of Q4 2017 and Q1 2018. This would limit annual growth to 2.6 percent by early 2018. However, we forecast GDP growth to pick-up over the subsequent year or so, reaching an annual pace of around 3.4 percent by early 2019."
Ebert said GDP growth would come from beefed-up fiscal stimulus from the new government, and population growth, which he expects to "keep running well above its long-term annual average speed of 1.2 percent for the next year, or two, or who knows how long?"
"The fact is that immigration has, so far at least, failed to come to heel the way the majority has assumed," Ebert said. "With this comes the risk that it simply stays very high. For the record, and perspective, New Zealand’s population hit 4.83 million as at Dec. 2017, up 2.1 percent year-on-year."
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