Services sector index reaches 20-month high

Monday 19th October 2009

New Zealand’s services industry recorded its strongest month in 20 in September, led by increased sales and new orders, providing more evidence that the economy is picking up pace after emerging from recession.

The Bank of New Zealand – Business NZ Performance of Services Index (PSI) rose 1.9 points to 53.2 in September from 51.3 in August.

A measure above 50 signifies the sector is expanding and the index turned positive for the first time in 16 months in July. The measure of activity/sales surged 7.5 points to 58 and new orders/business climbed 1 point to 58.6.

Investors are beginning to turn their focus to Reserve Bank Governor Alan Bollard’s review of monetary conditions on October 29. While he’s expected to keep the official cash rate at a record low 2.5% he may amend his language to hint at rate rises earlier than the current prediction of the second-half of 2010.

“All of the economy’s leading indicators are pointing to a much stronger year ahead,” said Stephen Toplis, head of research at Bank of New Zealand. “While there is little doubt a sharp acceleration is in the immediate offing, there remain significant uncertainties as to the sustainability of the expansion.”

Toplis cited rising international debt, the high kiwi dollar, low-wattage household saving and a deteriorating fiscal position as key risks to the recovery.

Among the three others of the five diffusion indexes in the PSI, employment edged lower to 48, recording its 19th month of contraction. Stocks/inventories declined in September from the previous month to 46.9 while deliveries nudged higher to 49.3.

Businesswire.co.nz

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