Tourism tough times drag down service sector

Falling visitor arrivals and a slowing tourism sector have pushed down the latest services sector performance index.

A troubled tourism sector has pushed the latest performance index of the NZ services sector deep into recession.

The latest BNZ Capital-Business NZ Performance of Services Index released this morning is down for April, breaking a run of slowly improving results for the sector.

It now stands at 43.7 - down 3.4 points from March, down 5.2 points from April last year and down 14.6 points from the same month in 2007.

If the index is above 50, it means the services sector is expanding, below that, then it is declining.

The average value for 2007 was 58.1, while for 2008 it was 49.1.

Phil O'Reilly, chief executive for Business NZ, said it was disappointing to see the sector retrench after some relatively encouraging results in February and March.

He said sector had now been in contraction for more than a year, with activity and sales struggling to get a foothold to recover.

Nervousness in the market was still holding many back from spending, but there was still a significant group that were finding positive trading conditions over recent months, with many citing new contracts and sales keeping their business busy.

O'Reilly said that looking at off-shore developments, the downturn in the global services sector eased further, but was still some distance from "outright recovery"

"Interestingly, the slow global improvement is now at almost the identical level as New Zealand's April result. This shows that New Zealand's service sector has managed so far to weather the storm better than most."

Research head at BNZ Capital Stephen Toplis said the troubled tourism sector is having a major influence on service sector performance.

"Tourism's success, or otherwise, is split between the revenue it accrues from domestic expenditure in addition to its offshore sourced earnings. In the current environment both are under threat.

"While in theory, with less money to go around, Kiwis should be more likely to holiday at home, this may not be the case as extremely cheap deals are being offered for international travel, particularly to Australia.

Toplis said that based on GDP growth, he calculated that tourism-weighted activity would contract by 1.7 per cent this year and 1.8 per cent in 2010.

"The silver lining is that 41 per cent of our tourists come from Australia. The economy there is faring much better than most, and the Australians too are looking for cheaper holidays closer to home.."

Toplis told a hotel industry conference last week that a visitor's decision on whether to travel a great distance was based on the wealth and wellbeing of that person, not the exchange rate.

He said in past recessions, New Zealand's visitor numbers had continued to grow because the source markets were still better off than New Zealand.

But this time it was different.

Despite having been in recession since last year New Zealand was in a better situation than many other countries, he said.

"New Zealand in an absolute sense over the next 12 months is looking awful but compared to the rest of the world it looks great."


- NZ HERALD STAFF