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New Zealand's Services Sector Contracts Again in March; Outlook Bleak, BusinessNZ Says

-- New Zealand's services sector shrank in March, posting its third consecutive monthly decline as the conflict in the Middle East impacted consumer confidence, with discretionary spending hit particularly hard, BusinessNZ said in a Monday report.

The BusinessNZ Performance of Services Index for March came in at 46.0, down 1.6 points from February and 6.6 points lower than the long-term average of 52.8.

"So poor was the PSI reading that our combined PMI/PSI indicator is suggesting the economy could soon be contracting," said Stephen Toplis, BNZ's head of research. "While we are not forecasting a recession, these data support our recent decision to significantly downgrade our growth expectations for 2026."

All five of the sub-indices returned readings lower than 50.0. The slump in new orders to 45.7 from 48.8 and in activity to 44.6 from 47.5 is "particularly worrisome," according to BusinessNZ.

Further sub-50 outcomes could be on the cards as retail trade and accommodation, cafes, and restaurants will take a hit from the inflation-driven decline in real disposable incomes.

"The weak PSI report is also consistent with our view that there is unlikely to be any real improvement in the labor market in the year ahead," Toplis said. "Looking forward, it's hard to imagine things improving quickly for many of the industries within the services sector."

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