New Zealand’s services sector extended its downturn in March, adding to signs that the economy may be heading toward contraction. The BusinessNZ Performance of Services Index declined from 47.6 to 46.0, a level firmly in contraction territory and well below its long-term average of 52.8. The reading signals continued weakness in domestic demand amid a challenging global backdrop.
The details point to a clear loss of momentum. Activity/sales fell sharply from 47.5 to 44.6, while new orders/business dropped from 48.8 to 45.7, indicating weak forward demand. Employment also slipped from 47.0 to 46.4, suggesting firms are scaling back hiring plans. Other components, including supplier deliveries (48.5 to 47.3) and inventories (46.5 to 46.2), remained subdued. Notably, all sub-indexes stayed below 50, confirming a synchronized contraction across the sector.
External factors are increasingly weighing on sentiment. According to BusinessNZ CEO Katherine Rich, the conflict in Iran has hit discretionary spending industries particularly hard, reflecting declining consumer confidence. This is echoed in survey feedback, with negative comments rising to 69.1% from 56.4%, highlighting growing pessimism among businesses.
From a macro perspective, the implications are turning more serious. BNZ’s Stephen Toplis warned that the combined PMI/PSI indicator is suggesting “the economy could soon be contracting”. While a formal recession call has not been made, BNZ has already moved to significantly downgrade its 2026 growth outlook.
