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NZ services sector narrowly avoids contract, PSI shows

Monday 14th November 2011

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The services sector only just made it into positive territory in October and the Rugby World Cup's (RWC) impact was probably negative overall as consumer dollars headed in that direction as opposed to other sectors of the economy, said BusinessNZ chief executive Phil O'Reilly.

The BNZ-BusinessNZ Performance of Services Index (PSI) fell 2.3 points to 50.6 in October from September and was down from 53.6 in August. A PSI above 50 points indicates the services sector is expanding while a reading below 50 indicates a contraction.

The average PSI value for calendar 2011 so far is 52.4 points, down from 53.2 in 2010 but up from 48.8 in 2009.

O'Reilly said both the balance and detail of comments from businesses illustrate the fine line the services sector is on at present.

“Looking at regional differences, a decline in activity for the Northern region to its lowest level since 2009 matches a similar result for the October PMI (Performance of Manufacturing Index),” he said.

“Given its relative weight to the economy, any upturn in national activity to finish the year on a positive note will need to see the Northern region reversing current trends.”

The survey is broken down into four regions, Northern, Central, Canterbury/ Westland and Otago Southland. The Northern region dropped to 48.6 points in October from 55.8 points in September, Central fell to 54.5 from 57, Canterbury/Westland rose to 64.2 from 57.2 and Otago/Southland rose to 43.7 from 34.4.

BNZ head of research Stephen Toplis said the PSI's drop is yet another sign the New Zealand economy is struggling at the moment.

“There is nothing like uncertainty to batter business confidence and things don't get much more uncertain than they are now,” Toplis said.

Among other things undermining business confidence is the confusion created by chaos in Europe, the expected pick-up in construction activity being postponed, weak domestic demand in Australia, the post-RWC hangover and the first signs that commodity prices might fall in a meaningful way,” he said.

Other negatives are the General Election and the fall-out from the PSA kiwifruit disease in the Bay of Plenty.

“Perhaps the remarkable thing about recent confidence readings is that they are as strong as they are,” Toplis said.


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