The most recent BusinessNZ Performance of Services Index (PSI) for July has been released, revealing a seasonally adjusted score of 44.6, an increase from June's dismal 40.7. However, this figure remains below the critical threshold of 50, which indicates a demarcation between growth and contraction.
BusinessNZ reported these findings on Monday, underscoring the ongoing challenges faced by the New Zealand service sector. Despite the improvements in July compared to the 'horrendous' results from June, the PSI’s uptick provides little comfort as it does not even reflect the performance levels seen during the peak of the Global Financial Crisis in 2008/09, according to Doug Steel, Senior Economist at BusinessNZ.
This statement emphasizes the significance of the current economic landscape, suggesting that service sector firms are grappling with considerable hurdles. The weakness permeating New Zealand's service industries is notably extensive, an observation made by NZ Business. They reported that the service sector's malaise is uniformly felt across almost all areas, with unadjusted PSI readings falling below 50 throughout various classifications, including firm size, region, and industry.
In fact, this comprehensive underperformance across all industries has not been witnessed outside of the circumstances surrounding the COVID-19 lockdowns, illustrating a deeply rooted issue. Particularly concerning is the retail sector, which has been hit hard during July. BusinessNZ highlighted that retail trade remains considerably depressed, with July’s unadjusted PSI plunging to a staggering 31.8.
This low point represents the most severe July result recorded in the 17-year history of the PSI survey, marking a significant downturn for the industry. Furthermore, the accommodation, cafes, and restaurants category recorded its most disappointing July PSI score to date, standing at 34.1. These findings collectively paint a bleak picture of New Zealand's service landscape as the PSI report signifies a regression of the economy, foreseeing rising job losses accompanied by a swift decline in inflation rates, as reiterated by the Bank of New Zealand in its Monday report to clients. Adding to the economic tension, the Reserve Bank of New Zealand has taken action by reducing its key interest rate by 0.25% to 5.25%, marking its first cut in four years.
The central bank is projecting continued rate reductions ahead, further indicating the sluggish pace of economic growth and decreasing inflation pressures. This scenario presents an intricate challenge for policymakers and businesses alike as they navigate through uncertainties in the service sector..