New Zealand’s services sector slipped back into contraction in February, signalling a slower-than-expected economic recovery.
Summary:
New Zealand’s services sector returned to contraction in February.
The BNZ–BusinessNZ Performance of Services Index fell to 48.0 from January’s 50.7 level.
The reading sits well below the long-run survey average of 52.8.
All major sub-indices were in contraction territory.
Stocks/inventories and employment recorded the weakest readings.
Businesses cited high living costs, interest rates and weak demand as key pressures.
Economists say the data suggests the economic recovery is slower than expected.
New Zealand’s services sector slipped back into contraction in February, signalling that the country’s economic recovery may be losing momentum after a brief improvement earlier in the year.
The latest BNZ – BusinessNZ Performance of Services Index showed the index fell to 48.0 in February, down 2.7 points from January. A reading below 50 indicates contraction in activity, while values above that threshold signal expansion. February’s result was also well below the survey’s long-run average of 52.8.
The data marks a reversal after the sector briefly returned to expansion for two months, with the February figure broadly consistent with the contractionary readings seen toward the end of 2025.
According to BusinessNZ chief executive Katherine Rich, the latest results suggest that the recovery in services activity remains fragile. All of the survey’s main sub-indices fell into contraction territory during the month.
The sharpest decline was recorded in the stocks and inventories component, which dropped to 46.7. Employment also weakened, falling to 47.2, indicating that hiring conditions within the services sector softened during the period.
Survey responses also highlighted ongoing economic pressures weighing on activity. The proportion of negative comments from businesses stood at 56.4% in February. Although this was slightly lower than the 58.7% recorded in January, it remained higher than December’s 50.4%, underscoring persistent concerns about the outlook.
Businesses cited weak economic conditions, elevated living costs and ongoing pressure from inflation and interest rates as key factors dampening consumer demand for services. Other issues raised included seasonal holiday disruptions, subdued business confidence, staffing challenges and rising operating costs.
Doug Steel, senior economist at BNZ, said the latest reading was disappointing given that other indicators had pointed to stronger momentum.
Steel noted that the survey contrasted with the relatively upbeat result from New Zealand’s manufacturing sector, where the Performance of Manufacturing Index released earlier had shown signs of improvement.
The divergence between manufacturing and services highlights the uneven nature of New Zealand’s recovery, with domestic demand-sensitive sectors still struggling to regain traction as households remain cautious about spending.
