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NZ services sector expands in August, composite index shows 4% annual GDP growth

Monday 18th September 2017

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New Zealand's services sector, which accounts for about two-thirds of the economy, gained in August, though employment dropped back.

The BNZ-BusinessNZ performance of services index rose 1.3 points to a seasonally adjusted 57.3 last month. All of the five sub-indices were above the 50 reading that separates contraction from expansion, while three rose in the month, with activity and sales jumping 7.1 points to 62.9. Employment fell 2.8 points to 52.2, and while this is still above the long-term average of 51.6, it is a noticeable slowing, Bank of New Zealand economist Craig Ebert said.

New orders/business rose 2.9 points to 63.1, with stocks/inventories also up 0.4 points to 52.8 while supplier deliveries fell 0.6 points to 51.4.

The PSI comes after its sister survey, the performance of manufacturing index, showed manufacturing activity continued to gain in August, pushing further above the long-term average as activity in the South Island and larger firms picked up. The composite index rose 1.4 points to 57.3 on a GDP-weighted basis, and was up 1.7 points to 57.9 on a free-weighted measure.

BNZ's Ebert said the composite index points to annual GDP growth of between 3-and-4 percent, more than the bank's formal forecast of 2.5-to-3 percent. In the second-quarter government accounts, which are due on Thursday, he is anticipating annual growth at 2.5 percent with real GDP up 0.8 percent in the quarter. 

"While this pick-up is stoked by primary industry production, the expansion continues to be underpinned by the services sector, in our estimation," Ebert said. "Retail trade will surely be another of the strong points of the Q2 GDP accounts. However, this was flattered by international visitors for the Lions’ rugby tour (mainly June) and World Masters Games (April). So we expect retail trade to contract a little in the September quarter."


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