Business / Covid 19

Services sector up on last month but remains 'woeful' - economist

12:08 pm on 15 June 2020

Activity in the country's services sector improved somewhat this month, but the results are still well below business-as-usual.

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The BNZ-Business NZ Performance of Services Index (PSI) rose to 37.2, up 11.5 points from its lowest ever reading in April, when New Zealand was in lockdown.

A reading above 50 points indicates growth, and below contraction.

BNZ senior economist Doug Steel said despite the boost month-on-month there was no denying the result remained woeful.

"We'd caution that just being allowed to open doesn't guarantee more activity. [The level] still sits well below the lows at around 45 recorded during the 2008-2009 recession."

"Combining the PSI results with similarly weak readings from the Performance of Manufacturing through April and May reinforces our thinking that [quarter two] GDP will show a massive decline - we think in the order of 18 percent."

Steel said electronic spending through May, although up on April data, was still down on this time last year and was unlikely to be sustainable.

"In short, it is a move in the right direction but there is still a long way to go. Put another way, it is a bounce off a very low base.

"And higher spending on consumables and durables likely included a good dose of pent up demand post lockdown, so the degree of strength is unlikely to be sustained for too long."

He said, like the PMI, employment levels were the only indicator to get worse between April and May and more job losses were expected in the third quarter than in the second.

"Illustrating the considerable pain in the labour market even before the huge wage subsidy scheme scales down. The trajectory of these indicators is consistent with our view that official figures for the labour market will likely get worse before they get better."