New Zealand’s services sector has crept back into growth for the first time this year, giving the economy a second piece of good news in the space of a week and adding to a picture of a recovery that is finally finding its feet after the oil price shock earlier in the year.
The BNZ and BusinessNZ Performance of Services Index rose to 50.6 in June, up from 48.0 in May and 48.9 in April. Any reading above 50.0 points to a sector that is expanding rather than shrinking, so the June figure lifts services back above the breakeven mark for the first time since January. It is a modest move, but after a long run of contraction it matters, because services cover roughly 70 percent of the New Zealand economy and touch almost every household through retail, hospitality, healthcare, transport, finance and tourism.
The survey asks businesses across the services economy whether activity, orders, staffing and deliveries are rising or falling, and turns those answers into a single number. Underneath June’s headline result the detail was mixed. New orders were the standout at 53.0, a sign that demand is starting to build again, and deliveries moved into expansion at 51.2. But the components that reflect what is happening right now stayed soft. Activity and sales came in at 49.3, employment at 48.8 and stocks at 49.9, all just below the line that separates growth from decline. In other words, firms are seeing more work coming through the door, but they have not yet turned that into more sales or more hiring.
BusinessNZ chief executive Katherine Rich said the result was welcome but far from a boom. It is “heartening to see the PSI edge back above 50.0 after such a prolonged stretch of contraction, though at 50.6 the recovery is tentative rather than the strong bounce” seen in manufacturing, she said. Rich pointed to the ongoing squeeze on household budgets as the main brake on the sector, with families still steering their spending towards essentials and away from the discretionary services, such as eating out and personal care, that feel the pinch first when money is tight.
That split showed up clearly in the industry breakdown. Hospitality remained under pressure and personal services were subdued, while transport and some business services did the heavy lifting to drag the overall index over the line. It is the same story many café owners, restaurateurs and small operators have been telling for months. Foot traffic is patchy, customers are cautious, and the recovery in confidence that would loosen wallets has been slow to arrive.
The services reading follows a much stronger signal from the country’s factories. The Performance of Manufacturing Index jumped to 59.7 in June, its highest level since July 2021 and one of the strongest manufacturing readings in the developed world last month. Taken together, the two surveys suggest an economy that is clearly turning up, even if the goods-producing side is running well ahead of the larger but more cautious services side.
BNZ head of research Stephen Toplis said the direction of travel was positive and that the numbers were consistent with economic growth climbing back towards around 2 percent. He framed the improvement as confirmation that the growth trend seen before the recent spike in oil prices is now resuming, rather than evidence of a sudden acceleration. Economists have been watching the services survey closely precisely because it captures so much of the domestic economy, and a return to expansion, however slight, removes one of the nagging doubts about whether the recovery was real.
The timing is notable. The Reserve Bank lifted the Official Cash Rate by 25 basis points to 2.5 percent at its July meeting, its first hike in three years, and the major trading banks quickly passed the increase on to floating mortgage rates. That makes the health of the services sector a live question, because higher borrowing costs tend to bite hardest on the discretionary spending that hospitality and retail rely on. If confidence is only just recovering, a fresh lift in mortgage repayments could test how durable June’s improvement really is.
There are also risks well beyond the country’s control. Rich noted that global instability, including tension around key shipping routes, remains a wildcard for an export-dependent economy that imports much of its fuel. A renewed jump in oil prices would feed straight back into transport costs, airfares and the price of almost everything that moves by road, undoing some of the relief that cheaper fuel has provided in recent weeks.
For now, though, the survey adds to a run of firmer data. Signs of a broader pickup have been building, and the combination of surging manufacturing, services back in growth and a government deficit that came in smaller than forecast paints a more encouraging picture than the one that dominated the first half of the year. The message from June is cautious optimism rather than celebration. The services economy is no longer going backwards, and after the year it has had, simply moving forward again counts as progress.
Are you seeing the recovery in your own business or your weekly spending, or does it still feel like a grind out there? Share your view in the comments below.
This article was written by AI, briefed to report the facts, hopefully without some of the bias people bring to the job 🙂
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