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Service sector outlook drops back to level of 2007-09 recession

More economic signals emerged today pointing to a slowdown in economic activity.

The data comes at the start of a big week for economic news, with the latest current account figures due out on Wednesday and the latest GDP figures on Thursday.

Today’s data does not point to a return to recession but it does suggest economic growth may be slowing to margin-of-error levels.

The latest performance of services index (PSI) shows growth in the sector flat, at 50 in a 100-point index where anything above 50 points to growth and anything under points to shrinkage.

It is also the fourth consecutive month fall in the index, Bank of New Zealand senior economist Craig Ebert says. Combined with last week's performance of manufacturing index (PMI) figures, the trend is worrying.

"The degree of slowdown in the PMI and, now, the PSI, along with the seizure in their employment components, certainly asks questions about the economy’s momentum."

Business New Zealand – which jointly sponsors the index with the Bank of New Zealand – says the trend is worrying.

“Like last month, a general slowdown and lack of demand continues to adversely affect some, while trying to establish the main reasons for positive business activity is difficult given the wide spectrum of comments,” Business NZ chief executive Phil O’Reilly says.

“Looking beyond the comments, of particular concern is the employment result, which combined with the weak employment result for the manufacturing sector shows that one would have to go back to 2009 to record a lower composite figure.”

The economy was still in recession in the first half of 2009.

Also out today is the latest New Zealand Institute of Economic Research consensus forecast update, which also points to slower growth.

The economy will, according to the forecasts, continue to grow rather than contract, but at a slower pace than previously thought.

“Global headwinds” is given as the main reason: weaker growth in New Zealand’s trading partners and a higher New Zealand dollar are all hurting the economy, principal economist Shamubeel Eaqub says.

The consensus outlook is for an average of 2.6% growth in GDP for the next three years.

“Growth in new jobs will be solid but unspectacular, mirroring the gradual economic recovery. Wages will also grow at a moderate pace.

“A gradual recovery means that inflation will remain muted. Forecasters expect interest rates to be lower for longer, with gradual rate increases expected from late 2013.”

That also means lower tax revenue for the government, making it harder to fulfil its policy of returning the government books to surplus by the end of the 2015 financial year.

More by Rob Hosking

Comments and questions

Don't tell the landlords, or the council, or the utilities.... times are bloody tough...

So, now the chickens are coming home to roost!
We are now seeing the sad results of Govt/reserve bank interest rate policies.
Instead of encouraging savings and so building domestic investment capital as a springboard for growth,our short-sighted govt has directed the reserve bank to keep interest rates low,doubtless with an eye to retaining votes.
Where is the leader who has the foresight and courage to put us on the right course??

Looks like it's time for a bit of Keynesian economic policy then!

Yes, indeed it is worrying.
But instead of worrying and issuing bland "smile and wave" reassurances and self-congratulary statements,I would like to hear what Govt intends to do to get NZ moving again.
But are they capable of doing that or is their powder dry?

A bad trend.
Govt needs to address the problem and offer some positive direction,even if this means cutting back on the photo ops!

Well it doesnt help when the government's only efforts to instal a regulatory framework that would support economic growth and innovation is to stand on their soap box and harp on about it, all the while their underlying Ministers charged with making the transformations cant make decisions that one day they may be held accountable for!! These ministers are better suited as club secretary down at the local sports club.

Seems like Maori are doing well though. Funny that..

Economic growth..?? Pffft! Point out to me when we had it at all over the last 3 years?? We’ll have some growth when we get new building consent stats up to around 25,000 + pa. Until then, just continuing misery and suffrage while the govt bleeds us dry with taxes on all-and-sundry; rate increases (aka tax); Treaty claims and over 1000 Auckland City employees on obscene salaries.

Oh know, what are all the pointless salary workers in Auckland's CBD going to do????!!!!

All I am reading here is a lot of observer rhetoric. Come on you experts whats your solutions? If you keep waiting for the government to fix the perceived problems then you will run out of lifespan while you wait.

We are a small innovative company that is having our best year ever in 15-years. The high dollars not really affecting us and we are a 100% export company.

NZ $ is at 83cents US...Why worry...Our purchasing power is going up..We should all be happy.

Gov't should stop borrowing from banks and create interest free money to spend on infrastructure. Put the country to work.

What a hopeful bunch you all are. No show of an enviroment in which gowth in GDP and productivity while we are proccupied with the over-generous welfare system, the diaspora of kiwis and the water/wind/whaterver rights.
Stand ready for on-going declines in our relative wealth and standards of living. Negative----maybe, sorry.

Print money, Drill wells, dig mines, build highways, do positive things, instead of naysaying, pandering to maoris.

Our expectations around infrastructure, personal earnings and lifestyle are very high for a small, Pacific nation. We may have inherited the 'european' system of government, law, education, etc but our population simply isn't large enough (or skilled enough) to sustain those expectations around a first world infrastructure indefinitely.

We work the longest hours (Aussie second) in the OECD for the lowest amount of money. The best and brightest are leaving NZ in droves and we have a rapidly aging population with high expectations about their lifestyles in retirement. (We also have the highest life span of any OECD country). One of our major cities has effectively been destroyed with a bill of $25billion and we are in the middle of a world financial depression.

Pretty big issues. Whoever can fix this will be a pretty special person.
I don't think it will be anyone from the current selection of politicians.

If your asking for suggestions, mine would be to start researching how the country could utilise industrial Hemp for fuel, food, clothes, paper, etc and work out if production in this area could stimulate our economy. We have a reputation for producing the world's best natural products (we used to have a great rep for paper) so perhaps there are more profitable ways of cashing in on this?

minus 50 points for the first person to drag this into a 'dope' conversation.

All very well to blame the government for everything but ...
Have a think about the growth initiatives they have put forward (petroleum exploration, mining, Sky City Convention Centres) only to be chastised and criticised by the same bleaters who are criticising them now for inaction. Get real people - we can't live in a green utopia, shielded from all the "bad" in the world (such as environmental accidents, problem gambling, etc) and continuing to enjoy our constant stream of new consumer products delivered from overseas (e.g. i-phones, tablets, motor vehicles, etc) without producing something of equal value to pay for it !!
The cause of this country's issues have a much longer gestation period than the current government's term, although their effect has only become apparent through recent natural disasters and global economic woes. The solution calls for us all to make some concessions and sacrifices to our idealistic attitudes.

Totally agree. All infrastructure and everything we need for a first-world living standard is waiting for us to harvest. All we need is for the bleaters to cease their indiscriminant breeding and their expectation that those of us who pick up the tab can continue to do so with one arm tied behind our backs.

We need building, building and more buildings, and people with money in their pockets to spend. I don't see any of that happening anytime soon. Meantime, we can thank god for cows.