The services sector in New Zealand contracted in March, according to the BNZ – BusinessNZ Performance of Services Index (PSI).

The PSI for March was 46.0 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). This was 1.6 points lower than in February and 6.6 points lower than the average of 52.8 over the history of the survey.

BusinessNZ’s CEO, Katherine Rich said “The services sector in New Zealand is clearly feeling the effects of the conflict in Iran. The industries that deal mainly in discretionary spending (Accommodation, cafes & restaurants; and Cultural, recreational & personal services) have been especially impacted, and this is likely to reflect a lack of consumer confidence.”

All five of the sub-indexes had readings below 50.0, and the weakest was the Activities/Sales sub-index at 44.6.

The generally downbeat mood of the sector was further evident in the proportion of negative comments from respondents. 69.1% of the comments were negative (compared to 56.4% in February). Unsurprisingly, many of the comments cited the effects of the conflict.

BNZ’s Head of Research, Stephen Toplis said that “So poor was the PSI reading that our combined PMI/PSI indicator is suggesting the economy could soon be contracting. While we are not forecasting a recession, these data support our recent decision to significantly downgrade our growth expectations for 2026.”