New Zealand’s weak services hint at slower economic rebound
Data this week are tipped to show that gross domestic product contracted in the second quarter
[WELLINGTON] New Zealand’s services industry contracted for an 18th straight month in August, suggesting that an economic rebound in the third quarter could be more sluggish than expected.
The Performance of Services Index (PSI) fell to 47.5 from 48.9 in July, Bank of New Zealand (BNZ) and Business NZ said on Monday (Sep 15) in Wellington. The gauge has not been above 50 – which signals expansion – since February last year.
Data this week are tipped to show that gross domestic product contracted in the second quarter. But the central bank and most economists expect a second-half rebound starting in the third quarter as falling interest rates spark consumer spending and business investment.
“Across the economy, we still believe the general signs of a turning point are there,” said BNZ senior economist Doug Steel. “However, there is a very real risk any ensuing bounce takes longer than currently expected.”
Reserve Bank of New Zealand governor Christian Hawkesby last week said that early indicators of third-quarter activity gave him confidence of an economic rebound, and he reiterated that policymakers’ central projection is that the Official Cash Rate (OCR) will be cut to 2.5 per cent by the end of the year, from 3 per cent currently.
Most economists, including BNZ, see that as the likely path.
Still, “the balance of risk to our interest-rate forecasts by a slim margin is that the OCR may need to go lower than the 2.5 per cent we have forecast”, Steel said.
Today’s report showed all five sub-indexes that make up the PSI were under 50, and are all below their long-run averages. It follows data on Friday that showed the manufacturing industry contracted for the third time in four months in August. BLOOMBERG
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