'Economy hits a brick wall' as services sector continues to decline
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The services sector continues to decline with all indicators consistent with an economy in recession.
BusinessNZ Performance of Services Index (PSI) for May was down 4.1 points to 44, which was well below the long-term average of 53.
Anything below 50 points indicated contraction.
"There are clear warnings that the New Zealand economy has hit a brick wall in Q2 [second quarter], and this is despite the substantial revenue growth flowing from the agriculture sector," BNZ senior economist Doug Steel said.
"If there was ever an argument for the provision of further stimulus from the central bank, then this is it."
BusinessNZ's chief executive Katherine Rich said the services sector had been contracting for several months, apart from a small expansion in January.
All key indicators for May were in contraction with negative comments from two-thirds of respondents.
"Many businesses noted reduced demand and falling revenues due to rising costs, economic uncertainty and low consumer confidence she said.
"Comments noted customers spending less, delaying decisions, and responding cautiously to inflation interest rates, and broader market instability."
Steel said the fall in the PSI followed the sharp decline in the Performance of Manufacturing Index (PMI), which fell to 47.5 in May from 53.3 in April.
"Together, they are consistent with the economy returning to recession. We're a long way from forecasting this, but the data are a reminder of just how vulnerable the economy currently is."
He said the combined services and manufacturing data looked nothing short of disastrous.
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