16 Jul 2018

Services sector activity cooling - survey

4:35 pm on 16 July 2018

Services sector activity has fallen to its lowest level in five-and-a-half years, raising concerns economic activity may be slowing sharply.

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BNZ senior economist Doug Steel Photo: Supplied

The Business New Zealand BNZ performance of services index fell to a seasonally adjusted 52.8 in June from 57.1 the month before.

That was the lowest reading since December 2012, and below the index's long run average.

"May strength followed by June weakness could just be monthly noise rather than a pointer to a sustained period of slower growth," BNZ senior economist Doug Steel said.

However, he said the sharp fall, notably in deliveries and employment, could not be ignored because of the weaker reading in manufacturing activity seen last week.

"The PSI (performance of services index) and PMI (performance of manufacturing index) results are not so easily dismissed as these are surveys of business outcomes not based on sentiment, outlooks, or expectations. In this sense, they are arguably more worrying from a growth perspective."

Mr Steel said combining the two indexes points to economic growth slowing to an annual rate of 2 percent or lower, which contrasts with bank and official forecasts of closer to 3 pct.

He said that, in turn, would open up an outside chance of an interest rate cut by the Reserve Bank, and certainly delay the probable start to rate rises, which most economists think will occur in the second half of 2019.

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