New Zealand’s services sector contracted for a second straight month in April, with the PSI reading at 48.9, as businesses cited fuel prices and the Strait of Hormuz conflict as key headwinds.
Summary:
- The BNZ-BusinessNZ PSI came in at 48.9 in April, up from 46.2 in March but still below the 50.0 expansion threshold, with BusinessNZ CEO Katherine Rich noting that more than two-thirds of respondents reported negative conditions and many citing fuel prices linked to the Strait of Hormuz conflict, according to the release.
- The New Orders sub-index was the sole component in expansion at 51.2, while all four other sub-indexes contracted, with Supplier Deliveries the weakest at 46.6.
- Micro-businesses with 1 to 10 employees recorded a sub-index of 44.4, while medium-to-large firms with 51 to 100 employees were in expansion at 55.5.
- BNZ Head of Research Stephen Toplis cautioned that the headline improvement could be read either as resilience or as an economy still struggling to get above water.
New Zealand’s services sector contracted for a second consecutive month in April, though the pace of decline eased compared with March, as businesses continued to flag fuel costs and the disruption to global shipping through the Strait of Hormuz as the dominant pressures on their operations.
The BNZ-BusinessNZ Performance of Services Index rose to 48.9 in April from 46.2 in March, a meaningful improvement in headline terms but one that left the sector firmly below the 50.0 threshold that separates expansion from contraction. More than two-thirds of survey respondents described the conditions affecting their business over the past month as negative, with fuel prices featuring prominently in their comments.
BusinessNZ chief executive Katherine Rich said the continuing conflict affecting shipping through the Strait of Hormuz made it difficult to foresee a quick return to expansion in the sector, a signal that external geopolitical conditions are now a material factor in domestic New Zealand business planning, not merely a headline risk.
Beneath the surface, the picture was mixed. The New Orders sub-index was the only one of the five components to record expansion, coming in at 51.2, offering a tentative signal that forward demand has not collapsed entirely. The other four sub-indexes were all in contraction, with Supplier Deliveries the weakest at 46.6, pointing to ongoing logistical strain consistent with disrupted shipping lanes.
The divergence across firm sizes was notable. Micro-businesses, those with between one and ten employees, recorded a sub-index of just 44.4, suggesting the smallest operators are bearing a disproportionate share of the pressure. Medium-to-large firms, those with between 51 and 100 employees, were at 55.5, comfortably in expansion territory, indicating greater capacity to absorb elevated input costs.
BNZ Head of Research Stephen Toplis offered a deliberately balanced reading of the data, noting that the jump from March to April could be interpreted as evidence of resilience or equally as a sign the economy is still struggling to find firm footing. With the Strait of Hormuz conflict showing no signs of swift resolution, the conditions weighing on the sector are unlikely to lift quickly.
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The New Zealand data adds to a growing body of evidence that the Strait of Hormuz disruption is transmitting through to real economic activity in Asia-Pacific economies, not just energy prices. Fuel cost pressures filtering into service sector margins complicate the outlook for the Reserve Bank of New Zealand, which must weigh external inflation risks against a domestic economy that remains below the expansion threshold. The divergence between micro-businesses, deep in contraction, and medium-to-large firms, firmly expanding, suggests the pain is not evenly distributed, with smaller operators least able to absorb elevated input costs.
This article was written by Eamonn Sheridan at investinglive.com.
