The New Zealand services PMI, also known as the BusinessNZ Performance of Services Index, fell to 48.5 in April 2025. This is a drop from March’s 49.1 and is below the long-term average of 53.0. The services sector appears to be experiencing a mild decline, despite ongoing discussions about economic recovery. New Zealand’s PSI is lagging behind other major trading partners.

Manufacturing Performance

In contrast, the New Zealand Manufacturing PMI for April showed growth, rising to 53.9 from 53.2 in March. While the Manufacturing PMI’s increase to 53.9 is a positive sign, the services sector continues to struggle, dropping to 48.5. This places the index well below the key growth mark of 50. The decline from March’s 49.1 is slight but consistent, highlighting a trend that has been developing for several months. With the long-term average at 53.0, it’s clear this situation is not a temporary glitch. We are witnessing a split—manufacturing is slowly improving, while services are still facing challenges. What does this mean in a broader context? The gap between the two sectors suggests economic instability. While it’s good that manufacturing is doing better, most modern economies, including New Zealand’s, rely heavily on services. A decline in services that has lasted several months can have significant effects. For traders looking at short-term changes, this contrast is more than just theory. Markets tend to react sharply to surprising data amidst uncertainty. With services data continuing to show contraction, opinions on interest rate expectations, business confidence, and job prospects begin to change. This is where both opportunities and risks may emerge.

Sector Divergence

Keller, a BusinessNZ executive, suggested earlier that the recent optimism among businesses might be premature. These numbers seem to support that idea and highlight why recovery-based strategies might face challenges soon. Confidence surveys had showed some positivity earlier this quarter, but that has not yet resulted in PMI growth. On the other hand, economist Bagrie pointed out that services, especially tourism, hospitality, and retail, are struggling with changing demand and rising costs, which slows their recovery. Recent domestic surveys indicate that operating costs remain high, with real wage pressures still affecting the market. This slows recovery and creates a cautious atmosphere among service-related businesses and currencies linked to consumer spending. We are now considering whether to reduce our positions that rely on cyclical growth assumptions. Instead, it may be wise to focus on the differences between sectors and look for trades that benefit from this divergence. For example, being long on industrial companies while hedging against domestic retail stocks could manage risk more effectively. In currency trading, movements in the NZD could reflect these differences, especially against currencies where services are stabilizing or growing. It’s also important to consider the current monetary cycle. Central banks have recently adopted a more cautious tone, even as inflation numbers slowly decrease. This caution likely arises from the underperformance of services, directly linked to domestic demand—a key factor for central bankers when deciding on interest rates. This makes earlier rate cuts less likely. Expect this data to influence future bank commentary and market reactions, as traders prepare for upcoming guidance releases. Current short-term positions are delicately balanced between optimism from manufacturing data and worries about a sluggish consumer and service sector. For our trading desk, the focus is shifting from overall market trends to analyzing these mismatches, as this is where potential gains may be found. Create your live VT Markets account and start trading now.

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