Weak Spending, Fuel Costs Keep New Zealand Services in Contraction

A fuel station in New Zealand. The country’s services sector remained in contraction in April as fuel costs and weak discretionary spending weighed on activity. Photo: Panamitsu/Wikimedia Commons, CC BY-SA 4.0

New Zealand’s services sector remained in contraction in April, although the pace of decline eased from the previous month, as elevated fuel costs and softer discretionary spending continued to pressure activity, a business survey showed Monday.

The Bank of New Zealand-BusinessNZ Performance of Services Index climbed to 48.9 in April, up from 46.2 in March. However, the reading stayed below the 50 threshold that separates expansion from contraction.

BusinessNZ chief executive Katherine Rich said more than two-thirds of survey respondents reported negative factors affecting their businesses during the month, with fuel prices frequently cited as a key concern.

“With the ongoing conflict disrupting shipping through the Strait of Hormuz, it is hard to see the sector returning quickly to growth,” Rich said in the statement.

The survey showed new orders moved back into expansion, rising to 51.2. The remaining four sub-indexes, however, stayed in contraction, with supplier deliveries recording the weakest result at 46.6.

According to BusinessNZ, micro-businesses employing one to 10 people faced the greatest pressure in April, posting a sub-index reading of 44.4. Medium-large businesses with 51 to 100 employees performed best, recording a reading of 55.5.

BNZ head of research Stephen Toplis said the April improvement could suggest the sector was showing some resilience to the Middle East conflict. More likely, however, it indicated the wider economy was still struggling to recover.

Toplis added that activity in accommodation, cafes and restaurants fell sharply in April, reflecting households’ tendency to cut discretionary spending first when financial pressure increases.