Services sector still shrinking

New Zealand's services industry contracted for a 15th straight month in June as sales slowed and companies reduced production, crimping demand for transport and business services.

The performance of services index fell to 45 from 46.2 in May, Bank of New Zealand and Business New Zealand said. A reading below 50 indicates services industries are contracting.

New Zealand's economy will shrink about 2.4 per cent this year as the worst recession in more than three decades curbs consumer and business demand, according to government forecasts.

Transport and communications services have slumped amid declines in air transport, road freight and business investment.

"All's not well in the services sector," said Craig Ebert, senior economist at Bank of New Zealand in Wellington.

"Many of the smaller components are going backward."

Spending on communications services fell in the first quarter from a year earlier for the first time on record, Ebert said.

Transport and retailing also fell in the first quarter, he said. Finance, insurance and real estate services expanded.

There are signs of increasing new orders from companies in the services industry, which suggests the industry isn't going to shrink much further, Ebert said. The new orders index rose to 50.8 from 49.7 in May.

Globally there are signs of recovery in the services industry, said Phil O'Reilly, chief executive of Business New Zealand.

"New Zealand has to start showing a similar path if there's going to be any confidence around the possibility that the second half of 2009 is going to be much better than the first," he said.

- BLOOMBERG