Services sector returns to growth for first time in nearly two years

Tuesday, 20 January 2026

It’s been a slow grind, but sentiment among services firms making up more than two-thirds of the economy appears to have finally turned.

Businesses in the services sector, which makes up about two-thirds of the economy, are reporting growth in activity for the first time in almost two years.

BusinessNZ said its Performance of Services Index, which measures self-reported levels of business activity among services firms, rose to 51.5 points in its December survey.

A PSI reading of 50 points suggests activity is neither increasing nor decreasing and the latest survey result is the first time the index has been in positive territory since February 2024.

The services sector had previously appeared a holdout as other evidence built of a modest economic recovery late last year.

BusinessNZ chief executive Katherine Rich said the December result ended “the longest run of contraction for the sector since the survey began” in 2007.

BNZ senior economist Doug Steel said the reading was still not strong, with the index still sitting below its historical average of 52.8 points.

But the “positive direction of travel” was important to acknowledge, he said, noting it followed a large jump in the equivalent survey BusinessNZ publishes for manufacturing firms, and meant there was forward momentum heading into the New Year.

The Performance of Manufacturing Index, published on Friday, rose to 56.1 points in December, up from 51.7 points in November.

The healthier responses to BusinessNZ’s surveys come on top of a resurgence in confidence recorded in the New Zealand Institute of Economic Research’s quarterly survey of business confidence, published last week.

That indicated confidence that economic conditions would improve over the next six months was at its highest level, late last year, than it had been since 2014 — and that this was starting to flow through into firms’ hiring intentions.

The flipside of the better economic data is that concerns inflation may get stuck at or just above the Reserve Bank’s 3% target band and that interest rate rises could soon be in the pipeline have begun to increase.

Stats NZ will release its estimate of December-quarter inflation on Friday.