In March, New Zealand’s BusinessNZ Performance of Services Index (PSI) recorded 49.1, a slight increase from February’s 49.0. This figure indicates a decline in activity within the service sector, with the long-term average standing at 53.0.
BNZ’s Composite Index, which combines the PSI and the Performance of Manufacturing Index (PMI), suggests a modest economic recovery, although the lower PSI readings have impacted the degree of growth indicated by the data.
Current Market Sentiment
What we’re seeing here is a keeping pace rather than a meaningful pickup. The latest service sector reading remains under 50, which tells us the industry is still in contraction territory. That’s not a disaster in itself, particularly given the recent global sluggishness in service activity, but it does show that any optimism must be tempered.
The marginal tick-up from February’s level isn’t strong enough to suggest a new trend. Historically, we’d want to see this index settling above the long-run average—currently 53.0—before talking about sustained expansion. The service industries tend to carry a heavier economic weight, so their underperformance acts as a drag on the broader figures, and we can see this showing up in the Composite Index.
With that, it’s no surprise that the combined PSI and PMI data only indicate weak forward momentum. While the manufacturing sector might offer occasional bright spots, one shouldn’t expect widespread spillover just yet. Weakness in services will continue to dull whatever gains come from production alone.
For those observing rate-sensitive instruments and short-term volatility, the message is fairly clear. Positioning should acknowledge that economic buoyancy remains patchy. There’s no evident spark in private sector demand, which remains hampered by both soft sentiment and the residual effects of tighter policy settings over the past year.
Economic Outlook
While the data may hint at stabilisation, that should not be misread. Stabilisation at a low level does little to drive returns or justify higher risk exposure. The risk-reward equation favours caution here, particularly until we have several months of consistent readings above neutral.
The reliability of each monthly release may vary, but when the broader trend continues to hover close to contraction, we would argue for limited optimism in expectations or positioning. Until services activity can convincingly recover, upside moves may be capped. The composite nature of the index doesn’t disguise this—rather, it confirms it when split into its parts.
Considering this, reactions to macro news in the coming weeks might be more focused on forward indicators. Any signs of strengthening from other inputs, like employment or consumer confidence, will need to be weighed against this still-soft backdrop. Being early can cost, especially in times such as these.
